Borrowers who need to refinance a home loan that is delinquent may explore their VA Streamline Refinance Loan options. One common question in this area is, "Can I refinance a delinquent existing VA mortgage with a VA Interest Rate Reduction Refinance Loan?"
According to the VA Lender's Handbook, Chapter Six, the answer is a qualified yes. Loans that are two months or more delinquent can't be automatically approved--they must be sent to the VA for final approval. According to Chapter Six, the "streamline" portion of the VA refinancing loan--the no credit check option--does not apply in such cases. "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.
A borrower with a recent Chapter 13 bankruptcy may need approval of the trustee for the new loan."
Chapter Six also has some additional guidance to the lender about what happens to those late payments. Are they "forgiven" in favor of the new loan? Or does the VA require these payments to be made as a condition of loan approval? From Chapter Six, to the lender:
"All late payments and late charges (and reasonable costs if legal action to terminate the old loan has commenced) can be rolled into the new loan. If the amount of late payments, late charges and legal costs is significant, the proposed monthly payment will be adversely impacted."
Chapter Six adds, "Carefully analyze whether the IRRRL would benefit the veteran and not create unacceptable risk to the Government in light of the new monthly payment."
It's clear from the information above that VA does expect the late payments, even if they have to be included in the new loan amount. For more information on this issue, or to see what may need to be done to address getting a VA refinance loan in your current situation, speak to a loan officer or contact the VA directly for clarification on these rules.
Do you have questions about VA loans or refinance loans? Ask us in the comments section.
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