Fortunately for VA borrowers, there are VA-guaranteed loan products designed specifically to lower interest rates and monthly payments. One of those, the Interest Rate Reduction Refinancing Loan or IRRRL for short, allows a buyer to refinance an existing VA home loan and get lower monthly payments
News, updates, and explanations to keep you informed.
VA Refinancing for Delinquent Home Loans
Are you a first-time homebuyer? When it's time to apply for a VA mortgage, the last thing one your mind is what could happen if your VA loan becomes delinquent. Buying a new home is a time of optimism, who is thinking about default or foreclosure?
But in a difficult economy, with layoffs and uncertain future job prospects, more Americans than ever are struggling with loan delinquency, foreclosure, even filing for bankruptcy in some cases.
Fortunately for VA borrowers, there are VA-guaranteed loan products designed specifically to lower interest rates and monthly payments. One of those, the Interest Rate Reduction Refinancing Loan or IRRRL for short, allows a buyer to refinance an existing VA home loan and get lower monthly payments. The IRRRL is just what many borrowers need to make their homes affordable again.
But what happens if the buyer wants to refinance a VA mortgage that has become delinquent? Is it possible for the borrower to qualify for the IRRRL?
Under normal circumstances when the VA borrower wants to apply for an IRRRL, it's a simple process-the IRRRL is designed to be quick and easy. These loans are nicknamed "streamline loans" or VA-to-VA loan because there's no underwriting involved. The logic is simple-the VA borrower has already been declared eligible to get the original loan, so no further investigation of credit worthiness is required. But that's under normal circumstances-what happens when the borrower is late on the mortgage?
When a VA borrower becomes delinquent on the original loan, though, the entire procedure changes for IRRRLs. A borrower is still technically eligible to apply for this type of VA refinancing loan, but according to VA regulations, the application must be submitted for "prior approval".
The VA requires prior approval for any loan 30 days or more past due. The loan officer must analyze the borrower's financial position and determine that the reasons for going delinquent in the first place have been resolved.
Then the lender must submit a proposal to the VA that includes typical loan underwriting information, but also document the interest rate and monthly payments for the new loan compared to the original note.
The lender also has to tell the VA how long it will take to recoup closing costs included in the loan AND "those paid outside of closing."
Unlike a traditional IRRRL application, the lender must request a copy of the borrower's credit report and include that in the package sent to the Department of Veterans Affairs. One aspect of IRRRL loans for delinquent mortgages remains the same-the borrower is still allowed to include the cost of energy efficient improvements for the home into the refinancing, but the additions may actually increase the amount of the monthly VA home loan payments-an important factor to consider before agreeing to the new loan.