VA Streamline Basics
For those who currently have a VA home loan they already know about the advantages a VA mortgage offers. VA loans do not require a down payment. Zero. This feature alone is probably the most talked about advantage VA loans offer. In addition, VA loans restrict the type of closing costs veterans may pay which is also a major benefit. The end result is a lower amount due at closing compared to other types of home loans. No cash needed for a down payment and restricted closing costs allow veterans to get approved for a home loan with much less out of pocket.
VA loans also come with an inherent government-backed guarantee. This guarantee, provided to the lender, means should the loan ever go into default, the lender is compensated at 25% of the loss. This guarantee is funded by what is referred to as the Funding Fee which today is at 2.15% of the sales price of the home for first time buyers. This is an upfront fee but does not have to be paid for directly by the borrowers and instead is rolled into the final loan amount. And unlike other government-backed home loans, there is no monthly mortgage insurance payment required which reduces the overall monthly payment allowing the buyers to qualify for a larger loan should they so choose. Interest rates for VA loans are also extremely competitive compared to other low or no down payment loan programs.
But the VA loan is also a loan that provides benefits beyond the original purchase. The Interest Rate Reduction Refinance Loan, or IRRRL, commonly referred to as the VA streamline refinance, is another major advantage. With the VA streamline refinance, the majority of the documentation is no longer required. When applying for a VA loan used to buy a primary residence, borrowers must provide third party documentation verifying income and employment. Credit is pulled and credit scores reviewed. Bank statements are provided to show there are enough available funds for closing costs. An appraisal is ordered to establish value. But things change with a streamline.
With a VA streamline, much of the original documentation required is not needed. There is no income or employment verification. There are no bank statements needed and there is no credit report pulled nor credit scores required. As long as the borrowers are lowering their monthly payment with a lower rate or switching from an adjustable rate mortgage or hybrid loan, none of this documentation is required. The only payment history required by the lender is to make sure there are no more than one payment made within the previous 12 months more than 30 days past the due date and no such payments within the past six. There are no valuation issues either because an appraisal is not required with a VA streamline mortgage.
With a conventional refinance, the application must be documented in the very same manner as when applying for a loan to buy a property. With the VA streamline, the documentation required is very little. Even if the homeowners owe more on their loan than their property is currently worth.