Refinancing a Delinquent VA Home Loan
VA borrowers who get into trouble with their VA mortgages have several options if they act quickly and don’t allow their VA loans to become seriously delinquent. The Department of Veterans Affairs encourages borrowers to anticipate financial trouble, get in touch with the VA and the lender when it becomes clear that financial difficulty is coming, and to take decisive action.
One reason for the need to act quickly is that the VA may allow the homeowner to refinance a delinquent VA mortgage using an Interest Rate Reduction Refinancing loan. The VA and lender may be able to work together with the home owner to avoid foreclosure, get the veteran into a lower interest rate and/or lower monthly payments using a VA IRRRL.
For this to happen, the VA has several requirements.
According to the VA Lender’s Guide, “Any IRRRL made to refinance a loan that will be 30 days or more past due as of the date of closing, must be submitted for prior approval.” That means the lender must submit the loan application to the VA for review before the loan can be approved. In order to do that, the lender needs information from the borrower that gives the VA justification to approve the refinancing loan.
The VA rules require the lender to “perform sufficient analysis to determine that the cause of the delinquency has been resolved, and the veteran is willing and able to make the proposed loan payments.”
Once that is determined, the VA requires a written proposal that includes the names of all parties to be obligated on the VA IRRRL. The VA also asks for an estimate of the new loan amount, the interest rate on that loan and a comparison of loan terms between the old and new note.
The VA rules also require the “discount to be charged, expressed as a percentage of the loan and a dollar amount.” and also a signed statement from the loan applicant, “acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate.”
In addition, the VA requires that the statement show interest rates and payments that compare the old loan to the new loan. This is important for transparency’s sake–the borrower needs to know the financial impact of his or her decision to refinance and how it could affect monthly financial obligations.
Unlike the borrower’s original VA loan, refinancing into an IRRRL does not require certification that the home is currently the primary residence–only that it has been so in the past during the term of the original loan.
About Joe Wallace
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.