VA Loan Refinancing Rules: A Reader Question
A reader asks, “Can a non-spouse ever be a co-signer for a person who has a VA loan & needs to refinance? The person who has the VA loan can not qualify on their own. Is there any way to help them qualify to refinance and not have to be on the Note or Title for that matter. Could the co-signer be omitted from the note and quit claim the title back at the closing table? “
This is a complex question, but there is a simple answer once a few additional details are known. The reader is asking on behalf of a borrower who “cannot qualify” for a refinance loan on his or her own. A lender might turn down a borrower for a VA refinance for a variety of reasons–why in this case was the borrower rejected? We asked the reader this, who replies “He’s self employed & is in a VA loan modification now. Would I be able to help him qualify since I’m not the spouse?”
The terms of the VA loan modification are unknown, so it’s difficult to tell what might happen if the borrower tries to apply for refinancing based on those terms. In general, loan refinancing rules state that a borrower applying for credit-qualifying refinancing VA loans such as a cash-out refinance is required to qualify–a co-borrower cannot make up for credit deficiencies on behalf of the primary borrower. There is an option for those who need to get into lower payments, however. An option that does not necessarily require a new credit/employment history check.
This borrower could apply for a VA Interest Rate Reduction Refinancing Loan (IRRRL) with any lender. The VA IRRRL could be most helpful in this situation–read what the VA Lender’s Handbook says about the IRRRL program:
“An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. Generally, no appraisal, credit information or underwriting is required on an IRRRL, and any lender may close an IRRRL automatically.”
We can’t say for certain what might happen in a hypothetical situation where this borrower applies for the VA IRRRL, but these loans are designed to help borrowers get into lower monthly mortgage payments and lower interest rates–anyone with a VA mortgage in this situation should consider applying for a VA IRRRL, especially at the time of this writing when mortgage loan interest rates are at very low rates.
Do you have questions about VA home loans? Ask us in the comments section.