VA refinancing loans are especially popular in a troubled economy, and with good reason. Many VA borrowers want to refinance their VA mortgages to get lower interest rates or lower payments, but those aren’t the only reasons to refinance a VA insured mortgage loan. Some people want to add improvements to the property to save money on utility bills or create a “greener” home.

The VA Interest Rate Reduction Refinancing Loan offers borrowers the option to add energy-efficient improvements even with the stipulations in place that the IRRRL must result in a tangible benefit to the borrower. In some cases, extras added to an IRRRL may actually increase the monthly mortgage payment. In such cases, the VA has additional requirements that must be fulfilled, according to the VA Lender’s Guide:

“If the monthly payment (PITI) increases by 20 percent or more, the lender must…determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable, and include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more.”

That may sound a bit daunting to the borrower, but there are some important factors to keep in mind when submitting to a new credit check and submitting qualifying information for the new loan. Chances are a current military member has seen at least one promotion, or anticipates a promotion by the time the application for refinancing has been submitted.

The same is often true of borrowers who have since retired or separated from the military–the point being that in many cases the borrower is earning more at the time of refinancing than during the original loan application. That’s an important factor to consider, as is the additional income of a spouse or co-borrower where applicable, who may
also be earning more.

Another important factor in the new qualifying data–the debt to income ratio. If a borrower purchases a home with a VA loan knowing at some point a refinance application is likely, anticipating the new credit check and keeping the debt-to-income ratio in check is a good strategy. The borrower who thinks ahead during the original purchase is in a much better position to get that credit-qualifying refinancing loan application approved.

After all, VA Interest Rate Reduction Refinancing loans are not the only options; the VA Cash-Out Refinancing loan is attractive to some for a variety of reasons, and having a plan to get into one at a later point after closing the sale can help the borrower make long term financial plans.