The VA Streamline Refinance Loan
For those that are eligible for a VA home loan, there really isn’t a better financing choice. Certainly all options should be considered but if someone is looking for a loan that requires as little cash as possible then the VA loan is a strong contender. VA loans don’t require a down payment at all and the veteran is limited to paying certain types of closing costs. Not a bad deal, right? No down payment, limited closing costs and competitive interest rates.
VA loans also come with a loan guarantee to the lender. Should the loan go into default (which is rare, VA loans outperform all others) the lender is compensated to 25% of the loan amount. This guarantee is financed with a form of mortgage insurance called the funding fee but is not an out-of-pocket expense and instead rolled into the final loan amount. And unlike other low down payment loans, there is no monthly mortgage insurance payment. Yet with all these advantages, there is still one additional benefit. It’s officially called the Interest Rate Reduction Refinance Loan, or IRRRL but most simply refer to it as the VA streamline refinance. Why “streamline?”
The moniker sticks because the refinance process is streamlined compared to a traditional refinance loan. With a traditional loan, the borrowers and the property are evaluated with a fully documented loan. When purchasing a home and using a VA loan, borrowers are asked to provide copies of recent pay check stubs covering a 30 day period to verify gross monthly income. Two years of employment is also documented. For self-employed borrowers, two years of income tax returns and a year-to-date P&L is needed. There are closing costs involved and the lender needs to verify there are enough funds in the bank. That means copies of bank statements. And while the VA doesn’t require a minimum FICO score, most lenders do have a minimum credit score requirement. This is all done when purchasing a home.
When refinancing, you can throw all of that through the window. As long as you’re refinancing an existing VA loan into a new VA loan and you’re lowering your rate or reducing your term, there is no need for pay check stubs and no need for employment verification. There is no credit check so no need for a minimum FICO score. No bank statement requirements, either. There is no appraisal requirement for a VA streamline refinance so current property values aren’t an issue. The only verification needed is the lender needs to make sure there are no payments made within the last six months more than 30 days past the due date and no more than one such payment over the past 12 months.
The VA streamline is a common sense approach to refinancing an existing VA loan because if you can make your monthly payments on time with a higher rate you should be even more so with a lower one. You can also use the streamline to refinance out of an adjustable rate VA loan or hybrid into a fixed. If you’d like more information about how this program works, it’s time to give us a call.