The VA Streamline loan for homeowners who currently have a VA loan is a great way to reduce your interest rate without a lot of work. VA Streamline lenders require very little verification from you, using most of the documents from your original loan to qualify you for the loan. The main idea behind this loan is that your interest rate is lowered enough that it increases your monthly disposable income. The VA is very concerned about veterans and their families having enough money to comfortably pay their living expenses while still being able to afford their mortgage payment. The exception to the rule on the VA Streamline loan is if you are refinancing from an adjustable rate loan into a fixed rate loan. In this case, your rate may increase slightly, but because it is a fixed rate, it is considered less risky for you and the lender.
VA Streamline Mortgage Application Process
Applying for a VA loan is similar to the process you underwent for the original loan. You can use any VA approved lender and even have the option to shop around with various lenders in order to obtain the best rate and lowest closing costs. In order to start the process, you will need to complete a standard loan application. The application will require you to disclose all of your information, including your address, place of employment, amount of income, and your current debts. In addition to the application, you will need to provide evidence of your entitlement to a VA loan. The original entitlement used for the VA loan you hold now is all that you need. Oftentimes, the lender can obtain the certificate on his own without any assistance from you, making the process even easier for you. The items you disclose on your application will not need to be verified in most cases, although some lenders might have their own requirements in terms of what they require for verification purposes.
VA Streamline Lender Underwriting Process
The underwriting process VA Streamline lenders use is different than the process used for the original loan. According to the VA, you do not have re-verify your income, assets, or even the value of your home – everything from the original loan may be used. However, some lenders are not comfortable with this scenario and require you to re-verify certain aspects of your loan application to ensure that you are still employed; make as much money as you say; and that your home is worth the amount you say it is worth. The advantage of the VA Streamline loan is that you are lowering your interest rate, which means a lower payment. Because this poses a lower risk than taking a loan with a higher balance or higher interest rate, many lenders will follow the guidelines of the VA and nothing more. All lenders will look for the following:
- Your credit history is used to determine the number of late payments you had in the last 12 months. The maximum amount allowed is one late payment. If you have more than one late payment reporting on your credit report, you will need to wait until a full 12 months has elapsed so that only one late payment is reporting.
- Your credit score may be evaluated by some lenders, with each lender requiring their own minimum score, but the VA does not require a specific score in order to qualify. The fact that you have a VA loan already is proof enough for them that you deserve the loan.
- Your appraised value from the original appraisal is used for qualification purposes on the streamline refinance. If you are very far underwater though – meaning you owe more than your home is worth, a lender may require an appraisal to see just how far underwater you are right now. Financing an underwater loan is often risky because you do not have any type of investment in the home, which makes walking away from the home much easier than if you had money invested in it.
- Proof of your income is not typically required for this loan. Some lenders like to see it and verify it, especially if you are shopping with different VA Streamline lenders than you used with your original VA loan. Since this is a new loan to them, they may want to verify for themselves that you can afford the loan.
- Proof that you occupy the home. The VA Streamline program is reserved for those that live in the home they used their VA entitlement on. If you are not living in the home, the only exception to the rule allowing you to use the program is if you had to move due to a job relocation. In that case, non-owner occupancy is allowed, but in general, you must provide proof that you live in the home in order to qualify.
- You cannot take any cash out of the equity of your home with this program. The loan amount is strictly reserved to the amount of the outstanding principal and any costs you can roll in (closing costs or funding fee). If you have a second mortgage, you will have to provide proof of subordination from the second lender as you cannot use the new loan to pay off your 2nd mortgage.
The Closing Process
Closing on a VA Streamline loan is similar to closing your original VA loan. You will have closing costs, including the VA funding fee, which is equal to 0.5% of the loan amount. In most cases, you can roll this cost into your loan amount along with your closing costs, as discussed above. The closing costs for the VA Streamline refinance are similar to any other type of closing. The amount and types of costs you pay will depend on the lender you use, but the general costs include:
- Processing fee
- Credit report fee
- Underwriting fee
- Title insurance
- Title search
- Origination fee
- Recording fee
- Tax fee
If you are using the same lender that provided your original VA loan, you may be able to negotiate the costs of the loan slightly. Or if you are using a new lender, you can ask to roll the closing costs into the loan or obtain a no-closing cost loan. This type of loan requires the lender to pay the closing costs in exchange for you taking a higher interest rate. If your original VA interest rate was high enough that you have enough room to lower the interest rate and still save money every month, you may be able to qualify for the no-closing cost loan.
It pays to shop around with various VA Streamline lenders to see who offers the best rates, closing costs, and programs. You might find one lender requires you to have an appraisal while another one does not. If you do not want to pay for the appraisal, you may want to shop around. In addition, some lenders will have stricter requirements regarding proof of your employment and income, so shop around until you find a lender willing to take your situation!