How does the VA streamline refinance process work? We’ll discuss the major steps to expect and what is involved in each of them.
1. The borrower must find a Veteran’s Affairs approved lender.
Veteran’s Affairs has a list of approved lenders who can offer the VA streamline refinance loan. No one else is eligible to offer loans under this program.
2. Determine eligibility of the borrower.
Eligibility for the VA streamline refinance depends on the status of the borrower. For a borrower to be eligible for a VA streamline refinance loan, the borrower must have served for at least six months in the armed forces in a time of peace, three months during an official war or six years in the National Guard or the reserves. Those who are no longer in the military must have been honorably discharged. The spouse of someone who in the line of duty, either in a time of war or peace, is also eligible.
The VA streamline loan cannot be assumed by someone else. A divorcing spouse cannot assume a veteran’s VA loan. However, the widow of a veteran killed in the line of duty can take over the loan and refinance it to lower the monthly payment.
3. Determine eligibility of the loan.
The VA streamline refinance is only performed on existing VA loans. Those with FHA loans are not eligible to refinance with this program. Nor can borrowers refinance loans that have already been refinanced in the past nine months.
The lender will check the status of the loan. Loans with more than one late payment in the past year or a past due balance are not eligible for refinancing under this program.
The lender will run the numbers to verify that the monthly mortgage payment is less than the current mortgage payment. This is called the VA Streamline IRRRL. The only exception to this is when the loan is being converted from an adjustable rate mortgage to a fixed mortgage; in these cases, a higher monthly payment is permitted. Debt consolidation loans are not allowed under this program, nor can debt consolidation loans be rolled into the refinanced mortgage.
4. Submit loan paperwork.
There isn’t really an underwriting process in the VA streamline loan process. Borrowers with existing VA loans have already had their underwriting done, per the prior loan. Lenders will verify that the borrower either currently or previously has occupied the property. The lender will ensure that its lien will be the primary one against the property. They will check that the borrower has used his or her VA loan eligibility on the property being refinanced, and that the property being refinanced is the only one the person owes money on.
5. Wait while the loan is processed.
Depending on the loan conditions and the lender, home owners may be able to defer payments on the loan for one to two months while the refinance process is completed. The lender should roll over any escrow balances and refund any over-paid accounts like PMI.
6. The new loan goes into place.
Borrowers cannot get cash back from the VA streamline loan. If borrowers want cash out of their homes, they need to get a cash-out refinance loan, not a VA streamline loan.
Homeowners will either have to pay closing costs or will pay the closing costs of the loan as part of the mortgage balance they pay over the life of the loan. VA funding fees will be assessed, but these fees are waived if the veteran is at least 10% disabled or if the applicant is the surviving spouse of someone who died in the line of duty. The VA streamline loan process is simpler, faster and far less complicated than conventional mortgage refinancing. If your home mortgages meet the necessary criteria and your mortgage payment history is good enough, the process is simple and only takes a few weeks to complete.