by Tom Murphy
Home Services Lending
Even if you have little to no equity in your property, you still may be able to streamline refinance a VA mortgage.
A VA loan holder is able to refinance into one of two products:
- A standard refinance loan
- A VA streamline refinance loan or the Interest Rate Reduction Refinance Loan or IRRRL.
Most people choose the VA streamline refinance option. It is ‘streamlined’ because it does not require:
- Income documentation
- Employment verification
- Credit check
Another huge, and we mean HUGE, benefit of the streamline refinance program is that you do not have to have any equity in your property! That’s right: Even if you have zero percent equity in the property, you can still refinance and enjoy a lower interest rate.
This is a “rate and term” VA loan, which means the borrower is not allowed to receive money back in the loan. If you are seeking to receive monies in a new mortgage, then check out the cash-out mortgage refinance program.
If you are interested in refinancing with a VA streamline refinance loan, here are some important details:
Income Requirements for VA Streamlines
As we stated above, you do not need to have your income or employment documentation checked to get a VA refinance loan. This is a major benefit to many borrowers because if you want to refinance, you probably are trying to save on your monthly payment for a good reason.
Some people may have had their job hours cut or even lost their job and are having trouble keeping their head above water. Because there is no income documentation needed, you should be able to refinance regardless of your income situation.
Note: If you ever want to do a VA streamline cash out refinance, you will need to provide proof of income. But if you are just doing a straight refi, no income verification is required.
Credit for VA Refinancing
The VA streamline refinance program does not require the lender to perform any credit check for the borrower or borrowers. However, be aware that some individual lenders MIGHT run a credit check on you; the VA does not require it, but this does not mean a lender will not do it.
If your credit score is below their minimum, it is not the end of the road. Fortunately, there are hundreds of VA-approved lenders. You may need to talk to several other lenders to find one who will work with your current credit score. Generally, having a 640 credit score will make it easier for you to refinance with zero equity, but you still may be able to find a lender who can help you if it’s lower than that.
Note, there have been some positive changes in VA refinance guidelines in recent years regarding credit. If you have a credit card balance and you pay it off right before closing, it will not count against your debt to income (DTI) ratio.
Paying off a credit card will raise your score significantly, but you might not even need to if your lender does not pull your credit. If you are pulling cash out, you will need to have your credit checked just like with a regular refinance.
Delinquencies Are Usually OK
If you are late on your mortgage and want to refinance, you usually are screwed with conventional lenders. However, a VA mortgage allows you to refinance even if you are late on your payments. You WILL need to submit a refinance application with ‘prior approval,’ which means that you will have to go through a credit check and underwriting to get a loan refinanced that is 30 or more days late. But it is certainly possible to get done with a VA refi.
Just as good, you may be able to refinance any late payments into your new mortgage, as well as any late charges from the old loan. You just have to be able to show that you have the income to afford the new monthly payment.
After you have applied for your VA refinance, the loan officer will study your case. He will determine if you had legitimate reasons for falling late on your payments and that they have been resolved. For example, you may have lost your job, or you were injured on the job and couldn’t work for three months.
You can’t refinance if you were just sloppy paying bills. Even the VA draws the line somewhere.
No Appraisal with a VA Refinance
The other big benefit to a VA refinance with no equity is that you do not have to have a new appraisal. The mortgage company will use your old appraisal to determine the value of the property that they are loaning on. As you probably know, the appraisal is usually the hang up when you’re trying to refinance a property where there is no equity, or worse, you have negative equity.
Again, the VA-home loan is a benefit of your military service, so you can usually get the lender to refinance it even if you are underwater on the property. Don’t forget to look up today’s refinance rates.
Change Term Is Ok
If you are refinancing a VA loan into an interest rate that is much lower, you might even be able to refinance the loan into a 15 year mortgage without having an outrageously higher payment. A 15 year mortgage is preferable in that you will pay the loan off much faster. You also will pay perhaps 50% or more less interest over the life of your loan.
But the payment is nearly always higher, and often a lot higher. Yet if you are able to get an interest rate 1% or more below your current rate, you may not have a big bump in payment.
Most VA loan holders will benefit by doing a refinance with zero equity through the VA streamline refinance program. You should speak to your lender today about it, because it is very difficult to find a loan that has more advantages than the VA streamline refi if you have no equity.