When interest rates fall, you want to refinance your loan, but if you have bad credit, it may not be an option. Luckily, if you have a VA loan, there is a way around it. What you may not know is that the VA has a program that doesn’t require the lender to verify your credit. In other words, you can have credit issues and still refinance your loan.
The VA makes it possible with their VA Interest Rate Reduction Refinance Loan. Keep reading to learn how it works.
What You Need to Refinance
First, in order to take advantage of the VA IRRRL program, you must have a VA loan. If you don’t have a VA loan, you aren’t eligible for the program.
If you do have a VA loan now, you must have a timely mortgage payment history on it. The VA requires lenders to look back at the last 12 months of payments. They want all 12 of those payments to be made on time. If you have one 30-day late payment within that time, you may be able to get an exception granted.
In addition to the timely mortgage payment history, you must benefit from the refinance. The VA wants to know that you aren’t refinancing unnecessarily. They want you to have some type of benefit for the loan. The benefit could be any of the following:
- A lower interest rate
- A lower payment
- A shorter term
- A more stable loan program (fixed rather than adjustable)
Getting the Refinance
If you meet the above requirements, you will likely qualify for the refinance. Here are the steps you must take:
- Apply for the Interest Rate Reduction Refinance Loan
- Prove your timely mortgage payment history
- Show your net tangible benefit
This is all that the VA requires. The VA doesn’t require lenders to pull your credit, verify your assets, verify your income, or determine the value of your home.
This means a few things:
- You don’t need to have good credit. You could have credit issues and still be able to refinance. This doesn’t mean that every lender will let you get by without pulling your credit, but some might.
- You can have a different job. If your income fell, the lender won’t know. They don’t have to verify your income or calculate your debt ratio.
- You can be upside down on your home. In other words, you could owe more than what your home is worth.
Finding a Lender
So what do you do if you have credit issues? You have to find a lender that doesn’t have lender overlays. The VA only requires lenders to look at a few qualifications when qualifying you for the loan. Lenders can add their own requirements, though. This is what’s called lender overlays.
In many cases, lenders want to pull your credit despite what the VA requires. This helps the lender know that you can afford the loan. Many lenders aren’t comfortable with relying on your original qualifying factors. They want to see for themselves that you aren’t in over your head in debt.
If you know you have credit issues, you may have to shop around to find different lenders. You can ask upfront if they have overlays. If you find lenders that will definitely pull your credit, you can keep shopping around until you find lenders that don’t have overlays and won’t pull your credit.
If you have a VA loan, you have the good fortune of using the VA Interest Rate Reduction Refinance Loan. If you have credit issues, you may still be able to qualify for the loan; you just have to find the right lender. Don’t let a few credit issues make it impossible for you to refinance and take advantage of today’s low rates.