Tips & Special Topics
Streamline: VA to VA Loans
Added February 16, 2009 | Updated February 18, 2009
Due to historically low mortgage interest rates, the first part of 2009 is proving to be an opportune time for many homeowners to refinance. The streamline refinance program for VA loans can have advantages over refinancing conventional loans in terms of speed and ease.
Low interest rates have prompted many homeowners to look into refinancing to save money on monthly payments. Those with conventional loans may be running into problems when they discover that refinancing a conventional loan usually involves getting an appraisal, pulling a credit score evaluation and coming up with cash for fees and closing costs.
With the housing market on a current decline, some homeowners are discovering the equity in their homes is shrinking. Many of these homeowners, who believe they have 20 percent or more equity in their homes, get a rude awakening when an appraisal for refinance reveals less than 20 percent equity. Less than 20 percent equity, in the conventional refinance world, generally means the borrower will need private mortgage insurance (PMI) for the new loan. A PMI premium can add a significant amount to a monthly mortgage payment.
What’s more, the 2008 recession may have led to compromised credit limits of many borrowers and damaged their credit scores. A lower credit score can raise the interest rate of a conventional loan and even keep someone from qualifying altogether.
VA-eligible borrowers can avoid many of these refinance woes by streamlining their existing VA loans. Interest Rate Reduction Refinancing Loan (IRRRL) is a fancy term for a Streamline refinance. A Streamline, in this context, can also be called “VA to VA”. The criteria for VA to VA Streamlines are fairly straight forward. They must result in a lower interest rate or lower payment, or both, except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM). When streamline refinancing from an existing VA ARM to a fixed rate VA loan, the interest rate may increase.
Streamlines can be a quick and painless way for VA-eligible borrowers to refinance for many reasons. The benefits for the Streamline program are as follows:
• Property does not have to be re-appraised
• No credit underwriting package is required (however, mortgage payment history is considered)
• Borrower does not have to obtain another Certificate of Eligibility
• Borrower may not need money “out of pocket” (costs may be rolled into loan)
• No private mortgage insurance
A VA IRRRL can be made by a VA-approved lender only if a VA borrower has already used his or her eligibility for a VA loan on the property intended for refinance. In other words, it must be a VA to VA refinance, and the VA borrower’s entitlement will be “reused” for the Streamline. Though the borrower need not obtain another Certificate of Eligibility, he or she will most likely be required to show the lender the Certificate used on the first VA loan to prove how much entitlement was used; therefore, the lender will know how much entitlement will be reused for the Streamline refinance. In some cases, entitlement may have been substituted for that of the seller if the VA loan was assumed. In any case, it’s good to have the original Certificate of Eligibility to show how much entitlement the borrower will be reusing.
VA loans require borrower occupancy when they are made. The occupancy requirement for IRRRLs is different from other VA loans. When the borrower originally got the VA loan for the property being considered for Streamline, he or she certified that it would be borrower occupied. For an IRRRL, the borrower need only certify that he or she previously occupied it.
Finally, under certain circumstances, a Streamline loan may exceed the sum of the outstanding balance on the existing VA loan. The VA funding fee and closing costs may also be rolled into the loan, as well as any other allowable fees and up to two discount points.
A Streamline does not create a cash-out situation for the borrower. And, no loan other than the existing VA loan can be paid from the IRRRL proceeds. Streamlines, like other VA loans, may be made for 15 or 30 years. The borrower should compare monthly payments for each loan duration to determine what is affordable.
The VA-required funding fee for Streamlines is typically one-half of one percent of the loan amount. Again, this fee may be included in the loan, if desired, so the borrower need not use money out of pocket. VA-approved lenders are not required to make IRRRLs, and some do not offer the service. Lender requirements may vary.
For assistance with a VA to VA Streamline, contact a loan specialist.
