It's May 2009 and interest rates are as low as ever! Now is the time to refinance your mortgage. VA's Streamline Refinance Program can provide a fast and easy alternative to refinancing the conventional way.
Just when you think they're low, they go lower. Plummeting mortgage interest rates have driven many homeowners to want to refinance in order to save money on their monthly house payments. More and more conventional borrowers are finding that their homes do not appraise as high as they thought, and their credit scores are no longer good enough to qualify under stricter lending policies. Finally, coming up with cash for fees and closing costs might be particularly challenging in these tough times.
Let's face it, the housing market stinks! Borrowers should no longer be surprised that the value of their homes is decreasing. Before July 1, 2006, when the market began to fall, 20 percent equity in a home was completely achievable after owning a home for a little as two years. But, since 2006 that 20 percent equity is likely whittled down to nothing for most. And, less than 20 percent equity means private mortgage insurance (PMI) for conventional borrowers. PMI can add hundreds of dollars to a monthly house payment.
Less than 20 percent equity might just be the least of a borrower's worries. The economic recession of 2008, and now 2009, may have some borrowers in a credit bind. Missed payments can catch up with a person and show up on his or her credit report. For conventional loans, lower credit score mean higher interest rates. If a credit score is too low it can prevent someone from qualifying altogether when seeking a conventional refi.
Most of the conventional refinance issues can be avoided for VA-eligible borrowers by streamlining their existing VA loans. Interest Rate Reduction Refinancing Loan (IRRRL) is a fancy term for Streamline refinance. A Streamline can also be called "VA to VA". The conditions for VA to VA Streamlines are:
Streamlines must result in either a lower interest rate Or a lower payment Or both With the exception of refinancing from a VA ARM to VA which can result in a higher interest rate due to the nature of ARMs.
Streamlines are a quick and simple way for VA-eligible borrowers to refinance. Streamlines have many benefits for VA borrowers such as:
No appraisal No credit report (mortgage payment history is all that is needed) No additional Certificate of Eligibility Nothing "out of pocket" No PMI Fees may be rolled into loan
VA IRRRLs can be made by VA-approved lenders as long as the VA borrower is "reusing" his or her entitlement for the same property. The borrower doesn't need to obtain another Certificate of Eligibility (COE) because he or she will most likely be using the original Certificate for the Streamline loan. The COE will simply prove how much entitlement was used; and therefore, the lender will know how much entitlement can be reused for the Streamline. If the original VA mortgage was assumed, it could mean that entitlement may have been substituted for that of the seller. This is okay as long as the original Certificate of Eligibility proves to the lender how much entitlement the borrower will be reusing.
Borrower occupancy is required for non-streamline VA loans when they are made. However, the occupancy requirement for VA IRRRLs is different. When the VA borrower originally obtained the mortgage for the property being considered for Streamline, he or she certified that it would be borrower occupied. For an IRRRL, the VA borrower must certify only that he or she occupied it in the past.
Although it's not typical, there are certain circumstances under which a Streamline loan may exceed the sum of the outstanding balance on the existing VA loan. A streamline does not create cash out for the borrower. VA Streamlines truly are "no money down" loans as the VA funding fee and closing costs may be rolled into the loan. Also, there may be other allowable fees and up to two whole discount points that can be added to the final amount of the loan without a down payment.
IRRRL proceeds may be used to pay off the existing VA Loan only. Streamlines, like other VA loans, may be made for 15 or 30 years. Higher monthly payments and lower total payment are associated with a shorter duration, and lower monthly payments and higher total payment are associated with a longer duration.
The VA-required funding fee for Streamlines is zero to 1/2 percent of the loan amount depending on the veteran. Again, the funding fee may be included in the loan so the borrower pays nothing down. There is no requirement for a VA-approved lender to include IRRRLs in their list of loan services, and some do not offer the service at all. Among lender's who do offer Streamlines, requirements may vary.
VA home loans are originated and funded by private lending companies and guaranteed by the U.S. Department of Veterans Affairs. Lenders must ultimately agree to the terms of each loan. For more information on VA streamline refinance loans please see the VA Refinance Articles as well as VA Streamline Refinance Program.