The VA Streamline Refinance has very few requirements, making it easy for almost every veteran that has a VA loan to refinance. The benefit of this loan is the fact that you can lower your interest rate and monthly payment, enabling you to save money every month. Unfortunately, though, there are ways that you can ruin your chances of getting this streamline loan.
Pay your Housing Payments Late
One of the largest requirements of the VA Streamline Refinance is that your housing payments are on time. Since this program does not require the lender to pull your credit, the VA and the lender need to feel confident in your ability to continue to pay your mortgage. They do this by monitoring your housing history for the last 12 months.
If your housing payments have been late over the last 12 months, you could ruin your chances of obtaining approval for the VA refinance. At the most, the VA allows you to have one 30-day late payment in the last 12 months. If you have more than that, it is an automatic denial for the VA IRRRL program. However, the denial is not forever. If you do have too many late payments, you can work on making them on time and wait for a full 12 months to pass so that you can show the lender that you can make your payments on time. This way you will be rewarded with a refinance that will lower your interest rate and payment, making your mortgage payments even more affordable in the future.
Not Living in the Home
Another requirement of the VA Streamline Refinance is that you live in the home. This requirement is tricky, though. You have to prove prior occupancy of the property, but you do not have to live there moving forward. The VA understands that life happens – things like being transferred to a location that is too far to commute is one example. The key is that you can prove that you did live in the home as you agreed to when you first took out the VA loan, though.
If you cannot prove occupancy of the home prior to the refinance, you will not be eligible for the VA refinance. The VA loans are typically for owner occupied properties, with a few exceptions here and there. Because of this, you have to be able to prove beyond a reasonable doubt that you lived in the home. If you moved and use the home as an investment, you will not be eligible for the VA IRRRL.
Taking Cash out of the Equity in the Home
The reason for the VA Streamline Refinance is to enable you to have a lower payment. The VA does not require very many qualification requirements simply because you are taking on a lower payment, so your loan becomes less risky. If you try to take equity out of the home, however, it will be a deal breaker.
The VA IRRRL program loan amount is limited to the outstanding principal balance plus allowable closing fees (including origination and discount points) and the funding fee. In some cases, up to $6,000 in energy efficient improvements will also be allowed. Anything beyond the maximum allowed loan amount on the VA IRRRL would make you ineligible for the program. If the loan is considered a cash-out loan, you would have to go through the full verification process in order to tap into the equity of your home.
Have a Payment Increase (more than 20%)
Because the VA Streamline Refinance began to help VA homeowners reduce their payment, there is a limit as to how much your payment can increase (in certain situations) in order for you to be eligible. In general, if your payment increases at all, you are not eligible, but there are a few exceptions:
- If you refinance from an adjustable rate mortgage to a fixed rate mortgage, your payment might be higher. If the interest rate is higher on the fixed rate because you were still in the beginning of the ARM or the interest rate did not adjust higher than fixed rates are just yet, your payment will increase, but it is typically acceptable for this reason.
- If you refinance into a shorter term than your original VA loan, your payment will increase as well. This again, is considered a less risky move since the bank will have their money back in 15 years rather than 30, if you opted for a 15-year term.
The basic rule for any loan that has an increasing payment for one of the above reasons is that the increase cannot be greater than 20%. This is the threshold the VA has determined is acceptable without requiring lenders to re-verify income, assets, and the value of the home.
Have a Credit Score lower than 600
Technically, there is no minimum credit score for the VA IRRRL program. Lenders are not even supposed to pull the credit of the borrower. However, some lenders want to be sure that the borrower is a good risk. These lenders will go ahead and pull your credit. If your score is lower than 600, chances are that no lender will provide you with the IRRRL program. Generally, however, it is very hard to have a solid housing history with only one late payment in the last 12 months and have a credit score lower than 600, so the chances of you getting denied for this reason are slim.
If on the off chance, your credit is lower than 600 despite your timely housing history, you can reapply for the VA Streamline Refinance once you rectify your credit. You can also shop around and look for other lenders that do not pull credit for the VA IRRRL.
These five ways are a surefire way to receive a loan denial on the VA Streamline Refinance Loan; however, they are very few and far between. Most people that have a VA loan are eligible to refinance into a lower rate without any problems, enabling them to save money every month.