If you are a veteran with a current VA loan, you may be able to refinance with the VA IRRRL program. This program gives you access to lower interest rates or better terms on a loan without verifying very much information. Typically, veterans with a timely mortgage payment history qualify for the program easily.
But, if one of the borrowers on the loan has passed away or you divorced them, you may find that you have more hoops to jump through to get the loan.
Are you the Veteran?
If you are the veteran on the loan and your co-borrower (spouse) passed away or you divorced them, you should still be able to get the VA IRRRL loan. Removing a borrower from the loan usually isn’t a problem.
If you aren’t the veteran, you may have a few more issues refinancing the loan with the streamline program. For example, if your veteran spouse died, you can remove home/her from the loan with the VA IRRRL. You can only do so if you were on the deed to the home when the veteran bought the home, though. If you got married after he bought the home with his VA benefits, you won’t be able to refinance using the VA IRRRL Program.
If you divorced your veteran spouse, you cannot refinance your VA loan with the VA IRRRL. You won’t have any VA rights if you and the veteran are no longer married. It doesn’t matter if you were on the deed at the time of the purchase. Once you are divorced, your rights to the VA IRRRL loan are gone.
Qualifying for the Loan After Removing a Borrower
Keep in mind that if you have to remove a borrower from your VA loan, the lender may want to determine that you can still afford the loan. This does go against what the VA IRRRL stands for, but it’s up to the lender’s discretion if they want to do so.
The VA doesn’t require lenders to check your income, but because the lenders are the ones that underwrite and fund the loans, they are the ones that have the final say. If a lender worries about your ability to pay the loan now that you are divorced or since your spouse died, they may ask for proof of your income.
This isn’t a general rule for all VA IRRRLs though. Some lenders are more relaxed on their guidelines and will let you refinance without verifying your income. If you worry that your income won’t’ get you qualified for the VA IRRRL without your co-borrower, but you know you can afford the loan, you can shop around to find the lender that will give you the loan without verifying your income.
How to Get Approved
Basically, what you need to do to get approved is show a lender that you are a good risk despite the removal of your spouse due to death or divorce.
Lenders first look at your mortgage payment history. If you have a large payment in the last 12 months on your mortgage, it’s going to make it harder for you to get the VA IRRRL without verifying your income. Lenders need to see that you could easily afford your old mortgage payment without fail. If that’s the case, they will feel good about your ability to afford the new loan that should have a lower payment and/or better term.
If you are removing a borrower from the loan, it’s best if you find a way to make your loan as beneficial as possible. Can you save a large amount of money each month by refinancing? Do you have a timely mortgage payment history? These two factors right there will help lenders want to give you the refinance without verifying too much.
The VA wants what is best for everyone involved in the situation. Of course, they want to help you, the veteran, but they need to protect the banks that write the loans to make sure that you can afford it. Doing your best to make yourself look financially attractive can help you increase your chances of loan approval.