Do you have a VA loan and want to refinance it? Did you know you may have the option to use the VA streamline refinance? This simple program allows you to refinance with very little documentation. The lender requires proof of timely mortgage payments and a net tangible benefit – that’s it!
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So how can you make this process go as smoothly as possible? Use our tips below.
Make Your Mortgage Payments on Time
The VA lender will put a lot of emphasis on your
mortgage payment history. This is one of the only factors they use to determine your likelihood of default. If you want the best rate possible and the most savings, you need to present a good mortgage payment history.
Technically, the VA allows veterans to use the VA IRRRL program even if they had one 30-day late payment in the last 12 months. Lenders don’t necessarily approve of that, though. The lender is the one giving you the money and putting themselves at risk. Even though they have the guarantee of the VA, which provides them with 25% repayment of the money they lose if you default, it’s not the full amount. Lenders would rather lend to those that are unlikely to default on their loan.
If you do make a mortgage payment late, it’s wise to wait 12 months after that time to apply for a VA IRRRL. You’ll experience less red tape and probably get a better interest rate.
Show a Good Net Tangible Benefit
You should show lenders that there is a serious benefit to you refinancing. Just lowering your payment $50, for example, may not be enough. Lenders want to see that by you paying the closing costs that you will experience a significant savings. Refinancing isn’t free. There should be a good break-even point.
The break-even point is the time that you start realizing the savings after covering the cost of the closing costs. Let’s say, for example, that you have to pay $4,000 to refinance your VA loan. By refinancing, you’ll save $150 per month. Your break-even point would be:
$4,000/$150 = 27 months
That’s a great break-even point. Lenders like it when you can recoup your costs within 3 years. That’s a short timeline that many borrowers can wait out, making the refinance well worth it.
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Keep Your Employment Stable
Even though lenders aren’t required to verify anything except your payment history and the benefit for the refinance, you’ll be in better shape if you keep your employment stable. Many lenders will still
verify your employment, if not your income.
When a lender calls your employer to determine your start date, they are looking for something that was at least 2 years ago. If you recently started your job, you may pose a risk to the lender. They want to know that your employment is stable and consistent. If you just started there a few months ago, there isn’t enough of a history for the lender to make a decision. They may consider not approving your request to refinance or charging you a higher interest rate to do so.
Show Compensating Factors
Even though the VA IRRRL program doesn’t require it, the more compensating factors you can show a lender, the more likely they are to refinance your loan. Compensating factors are something that shows the lender that you are a low risk of default.
A few good examples include:
- Assets on hand – You can show the lender that you have liquid assets that you can use to pay your mortgage should something happen to your income
- Low debt ratio – Did you recently pay debts off and therefore lower your debt ratio? Let a lender know that as that could convince them to give you the loan.
- High credit score – The VA doesn’t require lenders to pull your credit for the VA IRRRL, but many still do. The
higher your credit score is, the more likely you are to get approved.
You are free to shop around with any VA approved lender when you want to refinance your VA loan. If you shop around, you’ll have a better chance at finding the best deal. You’ll also find the lender that has the least overlays.
Some lenders take the VA guidelines at face value. They don’t require a credit report, employment verification, or anything else. They strictly look at your mortgage payment history and verify the net tangible benefit. Other lenders require so many other things that it makes it hard to get approved for the loan.
If you want the smoothest process, apply with at least three lenders. Compare their offers and their requirements. Then you can compare that to what you have to offer. If a lender will check your credit score, is your credit score high enough to qualify? If they will verify employment, have you been at your job for a while? These are all things to consider as you try to get the best deal possible on your VA refinance.
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