Veterans that currently have a VA-backed loan may be eligible to refinance their existing mortgage. The Department of Veterans Affairs realizes that, under certain circumstances, a loan refinance may benefit the VA as well as the veteran. There are, however, certain guidelines for a VA refinance. This article looks at those guidelines as well as at how to start a VA streamline mortgage refinance.
VA Guaranteed Home Loan Limits
A VA-backed mortgage actually guarantees 25% of the loan amount for a purchase or a refinance. This guaranteed amount actually reduces the risk of the mortgage lender considerably. The VA doesn’t set loan amount limits, but it does limit the guaranteed portion of the loan. These loan limits are set at $417,000 for 2011 with the exception of certain counties where average housing prices are higher than the national average.
Since a refinance is for the original VA loan, the home loan limits generally won’t apply to the refinance. Generally the VA will use the 25% guarantee amount for any refinance of the original loan, regardless of the loan amount. However, second mortgages and / or cash-out loans cannot be refinanced. Only the existing VA loan or converting an adjustable rate to a fixed rate, plus closing costs can be refinanced.
VA Streamline Mortgage Refinance Guidelines
It’s important to keep in mind that Veterans Affairs wants to do what’s in the best interest of the veteran. Since the veteran’s welfare is their first priority there are two scenarios that the VA will generally accept as reasons for a mortgage refinance:
- Interest Rate Reduction Refinancing Loans (IRRRL)
- IRRRLs that are three or more payments past due
These refinancing loans are usually made due to a reduction in the interest rate that will result in a lower mortgage payment for the veteran. Generally a veteran must be the owner of the subject property. One exception is if the married veteran died and the spouse was on the original loan, the spouse maybe entitled to a VA refinance. The VA will, however, take each scenario on a case-by-case basis, especially in the case of spousal eligibility.
The IRRRL must be approved by the VA if the original loan is three or more payments past due. The reason(s) that the loan is in the arrears must also be explained and satisfactory proof that the financial circumstances that led to missed payments are corrected. Income to debt ratio will be assessed as well as income and employment verification may be required.
Applying for an IRRRL loan can be done at any VA-approved mortgage lender. The veteran should have a Certificate of Eligibility for the lender to help establish eligibility for the veteran. If the veteran does not have a current Certificate of Eligibility, one can be obtained online at the Veterans Administration website.
Source:
U.S. Department of Veterans Affairs, website accessed December 29, 2010, http://www.va.gov/
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
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