The VA IRRRL program has the reputation of being easy to qualify to obtain and it is in most cases. The VA is very lenient with their requirements for this program. You don’t need an appraisal or the lender to pull your credit. You don’t even need to verify your income or employment history. In some cases, you can even be upside down on your mortgage and still obtain approval for the VA IRRRL program. The one thing you do have to prove, however, is timely mortgage payments for the last 12 months. However, there is one obstacle. If you don’t have clear CAIVRS, you may not be eligible for the program.
What Does it Mean to Have a Clear CAIVRS?
CAIVRS is the Credit Alert Interactive Voice Response System. The government runs the program, which helps lenders know when a borrower has defaulted on federal loans in the past. CAIVRS only oversees government debts. This could mean a mortgage, such as a VA loan or even your federal taxes. If you did not make good on your debt, it will show up in CAIVRS. Lenders are not supposed to allow you to refinance your VA loan if you do not have a clear CAIVRS.
Can CAIVRS Hurt Your Chances of Refinancing?
The VA is good about letting lenders decide for themselves if they want to take the risk on a particular borrower. This is, of course, as long as they meet the minimal VA guidelines. In the case of the VA IRRRL, this means timely mortgage payments for the last 12 months and no defaulted federal debts. However, there are exceptions to this rule. You can have a history of defaulted federal debt and still obtain approval for a VA IRRRL under certain circumstances:
- If you defaulted, the debt must be brought current by the time you apply for the refinance. If you can prove you paid the debt off, you may be eligible. The lender may or may not pull your credit as a result of a defaulted federal debt. They may want to see what type of credit risk you are now. Basically, they want to see how many other debts you defaulted on before they make a decision.
- If you did not pay the debt off, but have a payment plan in place, you may be eligible as well. It is up to the lender to decide if they want to take the risk. This is, of course, assuming you have proof of timely payments for your payment plan. It is not enough to have the plan in place, you have to prove you are making good on the promise to pay every month.
One steadfast rule the VA has, however, is the requirement to never lend to any borrower with a currently defaulted federal debt. For example, if your taxes from last year are still unpaid, you cannot refinance your VA loan. You must get current on your federal debt and then you may be able to refinance if the lender allows it. The VA forbids lenders from providing funds to any borrower with an outstanding federal debt, though.
How the VA IRRRL Can Benefit You
Is it worth going through the process of making good on your federal debt in order to secure a VA IRRRL? It depends on your circumstances, but generally, it is worth it. The VA IRRRL program enables you to lower your mortgage payment with very little verification. It might not seem like you can secure a refinance if you don’t have clear CAIVRS, but the opportunities are there. The VA does not require a lot of verification, even if you have outstanding federal debt. As long as you can prove that you made good on your debt, you may be able to find a lender to refinance your loan.
The VA IRRRL program can help you in several ways:
- Lower your payment with a lower interest rate
- Lower your term if you can afford the slightly higher payment, which means you pay your loan off faster
- Increase your residual income every month, making it easier to afford daily expenses
The good news is that the VA loan is not as expensive to refinance as many other loans. Because the lender does not have to go through many of the same processes as they do for other loans, you save money. The VA also allows you to roll any of your closing costs and funding fees into the loan as long as your payment does not increase. This means no money out of pocket and potential savings on your monthly mortgage payment.
Making Good on Federal Debt is Important
Even if you don’t want to make good on your federal debt, it helps you down the road. Whether you want to refinance with the VA IRRRL program or you sell your home and want a new VA loan, you cannot do so until you pay your federal debts. It might seem expensive and unnecessary, but eventually the debts catch up to you. Rather than letting them sit, pay them off and take advantage of the IRRRL program to lower your interest rate.
If you need help determining if you have clear CAIVRS, talk to a lender. They can search the system for you to determine if your debts were taken care of or not. The most common debts are mortgages you either foreclosed on or took a short sale as well as tax debts. There are a few others, but these are the most common. Taking care of them not only clears your rating within CAIVRS, they also help to increase your credit score. When you make good on these debts, you improve your financial situation all around. Even though you have a little less cash in your pocket, you have more opportunities to secure financing in the future, helping you to achieve your goals with your current or future real estate.