If you have a VA loan, you have the benefit of refinancing with little documentation. The VA IRRRL program allows veterans to refinance into a lower rate very easily. Just like your current VA loan, though, you must determine your VA IRRRL eligibility. Luckily, it is pretty easy to do. The requirements are very simple. Even past credit issues might not hamper your chances at this loan.
The Basic VA IRRRL Eligibility Requirements
First, let’s take a look at the VA IRRRL eligibility requirements. They are short and sweet.
- You must currently have a VA loan
- Your last 12 payments on this loan must have been on time
- You must have a benefit, such as a lower interest rate and/or payment
- You must prove you lived in the home as you primary house.
That’s it! Notice we didn’t say anything about your credit score? That’s because the VA doesn’t need lenders to pull credit for the VA IRRRL program. Your credit score doesn’t matter. That means neither does your credit history. The VA doesn’t look at that. They focus on your mortgage payment history as well as the benefit of the loan.
The Lender Overlays
Now, that being said, there are exceptions. The VA does not fund the loan. A lender provides the funds. This means the lender has a say in what they require. At a minimum, they must follow the VA’s rules. But, they can add their own rules as well. This means they could require a credit pull. If this is the case and you have past credit issues, you might want to look elsewhere. Not every lender will have overlays. All it takes is some shopping around to find a lender willing to not pull credit. It’s not that hard.
Be Honest With Lenders
The best thing to do is be honest with lenders. As you shop for the best rate and closing costs, tell them your issue. If you had a bankruptcy in the past, don’t hide it. If you know you had some late payments on other accounts, not your mortgage, just tell them. The loan officer will be honest with you. If he knows the underwriter will pull your credit, he will tell you. This way you can move on and try another lender.
If you try to hide your blemished credit history, though, it could hurt you. If you are unaware a lender will pull your credit, you might get declined halfway through the process. This is not when you want to hear you lost your approval. By telling a loan officer upfront, you can figure out the best thing to do.
Mortgage Payment History Matters the Most
In all honesty, the VA cares the most about your mortgage payment history. It makes sense. If you make your payments on time now, it will be easier to afford the lower payments. The only time they might care is when you refinance from an ARM to a fixed rate. A payment increase of more than 20% may require full verification. The lender needs to know that you can afford the loan. Even though fixed rate loans are less risky than adjustable rate loans, the higher payment could prove to be difficult.
But, the VA focuses more on your residual income than anything else. With a higher payment, they may want to make sure your residual income doesn’t dwindle. This is what the VA attributes to their low default rate. In fact, they have one of the lowest default rates amongst any other programs available. It’s not because they focus on credit scores or histories. It’s because they care that veterans have enough to make daily living expenses without sacrificing.
How You Can Fix Your Credit
Keep in mind, you can always fix your credit. Even bad credit can be repaired. It may take time, but it is time well spent. If you are worried about your score, consider the following steps:
- Check your credit score at least once per year
- Look for inaccurate information. Provide proof of the mistakes to the credit bureau and get the changes made.
- Don’t overuse your credit cards. Just because you have an available balance doesn’t mean you have to use it. You should only use up to 30% of your available credit to keep your credit scores high.
- Live up to your credit mistakes and then fix them. Don’t try to hide them. Instead, bring your payments current and pay your collections. Over time, your credit score will improve.
It is a lot of work to fix your credit, but you’ll be glad you did. Even if you don’t need a good score for VA IRRRL eligibility, it will benefit you in other areas.
The last thing you want to do is avoid refinancing your VA loan because of a bad credit history. Instead, take the steps to fix your credit and talk to different lenders. Your credit history might not even be an issue. If it is, show the lender you took the steps to fix it. By bringing all accounts current and limiting the amount of debt, you can maximize your chances of a refinance.
Don’t get discouraged if one lender turns you down. Talk to others. The VA IRRRL eligibility rules don’t’ require the use of your credit score. If your credit is that bad, you have options. It just might take a little time. In the end, you will have a VA loan with a lower interest rate, allowing you to save even more money each month.