VA Streamline Refinance Rules: Mortgage Payment Decreases
The VA Streamline Refinance loan, also known as a VA Interest Rate Reduction Refinance Loan or IRRRL, is an important benefit for those who have existing VA mortgages.
This refinance option has no VA-required credit check or VA required appraisal, and one of the general rules of the program is that the new loan benefit the borrower in specific ways such as a lower monthly payment, lower interest rate, or both.
In general, VA loan rules for VA IRRRLs in the VA Lender’s Handbook state:
“The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless one of the following exceptions applies:
- The IRRRL is refinancing an ARM,
- Term of the IRRRL is shorter than the term of the loan being refinanced, or
- Energy efficiency improvements are included in the IRRRL.”
What happens if the amount of the mortgage payment or interest does increase? Chapter Six of the VA Lender’s Handbook instructs the lender:
“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.”
The borrower must certify as stated above in order to insure that the implications of the increase are fully understood before they are committed to in writing.
Even without an increase in monthly payments, Chapter Six says, “For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate. The statement must show the interest rate and monthly payments for the new loan versus that for the old loan. The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing).”
Do you have questions about VA home loans? Ask us in the comments section.