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VA Loan Rules: IRRRL Underwriting

By
Mortgage and Lending with www.OneTimeClose.com

VA loan options include the choice to refinance an existing VA mortgage using a VA Interest Rate Reduction Refinance Loan or IRRRL. The VA IRRRL rules include the following statement found in VA Pamphlet 26-7, Chapter Six:

"No credit information or underwriting is required unless:

  • the loan to be refinanced is 30 days or more past due (see section 2 of this chapter) or,
  • the monthly payment (PITI) will increase 20 percent or more."

Some borrowers are confused by this rule, which basically states no credit check is required for a VA IRRRL unless one or both of the following circumstances apply. So why do some lenders require a credit check for a VA IRRRL anyway? Are these lenders stepping outside their authority by doing so?

The short answer is no.

Participating VA lenders may not be required to run a credit check for a VA IRRRL, but the VA loan program does permit them to do so if their requirements so dictate. Just because the VA has a minimum standard (in this instance, the no credit check policy with two exceptions) does not mean the lender is not allowed to exceed the minimum requirement.

The only restriction on the lender is that when such credit checks ARE required that they be applied equally to all applicants. The lender must apply any higher standards fairly and in accordance with Fair Housing Act regulations.

There is one caveat mentioned in the VA loan rules for IRRRLs; anyone with a Chapter 13 bankruptcy may need to request permission from the legal authority in such cases to move forward with the loan. From Chapter Six, VA loan rules state, "A borrower with a recent Chapter 13 bankruptcy may need approval of the trustee for the new loan."

For more information on these or other VA loan rules, check with your loan officer or contact the VA directly.

Do you have questions about VA home loans or refinance loans? Ask us in the comments section.

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