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VA Streamline Refinancing: When A Credit Check May Be Required

If you have a VA loan now might be a good time to consider lowering your rate with the VA Streamline Refinancing option.  Lower payments help make your Northern Virginia home more affordable.

One of the benefits of the VA Streamline Refinance loan, aside from lower interest rates and/or monthly payments, is that the VA does not require a new credit check or appraisal for the loan. Since the borrower already qualified for the mortgage he or she is technically already qualified for the VA Streamline Refinance loan (provided certain conditions are met).

But there are cases where a VA Streamline Loan might require a new credit application–all VA Streamline loans are not the same. Let’s see what the VA loan rulebook says about credit checks for VA Streamline Loans, also known as Interest Rate Reduction Refinancing or VA IRRRLs.

In circumstances where the amount of the monthly mortgage payment actually INCREASES by 20% or more because of add-ons to the loan such as an Energy Efficient Mortgage, discount points, fees or other expenses, VA loan rules stipulate that the lender must do the following:

“…determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable, and include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more.”

Furthermore, the VA Lender’s Handbook requires a signed statement from the borrower, “acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate.” That statement must show the details of both the old loan and the new one. “The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing).”

Monthly payments that exceed the original payments by 20% or more must be underwritten; “the lender must include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more.” The VA provides a helpful example of how this works. It’s found in Chapter Six of VA Pamphlet 26-7 which shows the following:

“Example

  • Vet’s monthly payment decreases by $50.00.
  • Vet pays $5,000 in closing costs (includes all costs – closing costs, funding fee, discounts, etc).
  • Recoup closing costs in 100 months – $5,000 divided by $50.

Note:  This would not be required in those limited cases where the payment is not decreasing (reduced term of loan, etc.).”

For more information on whether these loan rules apply to your VA Streamline Refinance loan, speak to a loan officer about your application.

Do you have questions about VA home loans or refinance loans? Ask us in the comments section.

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If you are interested in learning more about the Northern Virginia Real Estate market including Alexandria, Arlington, Fairfax and Prince William Counties give Cindy Jones and Integrity Real Estate Group a call at 703-346-2213.

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Comment balloon 2 commentsCindy Jones • February 15 2013 04:44AM

Comments

Cindy, Excellent re-blog. This is good to know for anyone looking at VA loans.

Posted by Frank Laisch, "The Insurance Guy" (1492 P&C AGENCY, LLC) almost 6 years ago

Great reblog Cindy.  I just got done with a VA streamline on my own home and it was painful as the lender didn't have a clue on what was expected.  I had to educate them on the entire thing...however, had no idea that when using a VA streamline your payment was actually allowed to increase..I could have sworn that it said in the rules that the payment must actually decrease.  I am not sure it would be worth doing a streamline if the payment increased...interesting though.  

Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) almost 6 years ago

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