VA Loan Reader Questions: Refinancing Rules For Divorced, Non-Veteran Borrowers
A reader asks, “My sister is a cosigner on a VA loan based on her husbands eligibility. She is now divorced and the house was given to her in the divorce agreement. She received part of her husband’s retirement, since they were married 33+ years. Her ex-husband signed a quitclaim relinquishing all rights to the house.”
“She is responsible for the payments according to the divorce agreement and there has never been a late payment on the loan. She has never remarried…My sister wants to do a Streamline and wants to know if the quitclaim signed by her ex will be a problem. If so, is there a remedy to the situation so she can get a VA refinance?”
According to the VA Lender’s Handbook, for VA refinancing with an Interest Rate Reduction Refinancing Loan, “Generally, the party(ies) obligated on the original loan must be the same on the new loan (and the veteran must still own the property).”
VA loan rules do permit a spouse to refinance a VA home loan in cases where the veteran borrower has died, but for the purposes of this reader question, the rules say the spouse cannot apply for a VA IRRRL.
Simply put, a divorced non-veteran spouse alone cannot apply for a VA IRRRL. The rulebook states that in such cases, “the divorced spouse is keeping the home and wishes to refinance. The spouse cannot get an IRRRL unless the veteran agrees to be obligated on the new loan and commit his or her entitlement to the new loan. (such as, a person without entitlement cannot get an IRRRL or any other type of VA loan.)”
The VA has published a table that lays out who can and cannot apply for a VA IRRRL:
The reader asks if there is any remedy for the borrower in this situation; according to VA loan rules the only way a divorced, non-veteran borrower can get a VA refinancing loan in this circumstance is to get the participation of the original borrower or apply for a refinancing loan with a veteran who will use his or her VA loan entitlement.