In recent days, we’ve gotten several reader questions about VA loan refinancing, credit qualifying, and appraisals. One of the big questions concerns VA Interest Rate Reduction Refinancing Loans or IRRRLs.
Readers are sometimes confused when they are told their VA IRRRL requires a new credit application and/or an appraisal. VA loan rules state;
“Generally, no appraisal, credit information or underwriting is required on an IRRRL, and any lender may close an IRRRL automatically.”
So why does a borrower need a new credit application and/or appraisal?
Much depends on the nature of the individual refinancing loan. According to VA regulations as found in the VA Lender’s Handbook, “If the monthly payment (PITI) increases by 20 percent or more, the lender must:
• determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable, and
• include a certification that the veteran qualifies for the new monthly payment which exceeds the previous payment by 20 percent or more.”
The rules also require a signed statement by the borrower and the lender; “For all IRRRLs, the veteran must sign a statement acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate.
The statement must show the interest rate and monthly payments for the new loan versus that for the old loan. The statement must also indicate how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing).”
When it comes to appraisals, the lender is free to require a new one where reasonable and appropriate–just because the VA does not require a new appraisal does not mean the lender won’t.
Comments(0)