VA Refinancing for a Delinquent Mortgage (Part 1)
When a first-time home buyer applies for a VA mortgage, the last thing in the world they’re expecting to deal with is going into loan delinquency, default or even foreclosure on the home. Real estate agents want their clients to succeed, buyers want to keep their investments and watch them grow in value.
But in tough economic times, more Americans than ever are filing bankruptcy, sliding into delinquency and even getting foreclosed upon. Fortunately for VA borrowers, there are VA-guaranteed loan products 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.
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 very quick and easy. The IRRRL is known as a “streamline loan” 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.
When a VA borrower is delinquent on the original loan, though, the entire procedure changes for IRRRLs. A borrower is still technically eligible to apply for this type of refinancing, 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. What does it take to get prior approval in these cases? I’ll explain that in my next blog post.