Interest rates are at historic lows for the first part of 2009, and now may be a great time for many homeowners to refinance. VA’s Streamline Refinance Program can be easier and speedier compared to conventional loans.

Falling mortgage interest rates have compelled many homeowners to research refinancing avenues in order to lower their monthly payments.  Borrowers with conventional loans may be experiencing problems getting an appraisal, pulling a credit score evaluation and coming up with cash for fees and closing costs during the refi process. 

With many housing markets on the decline, there may be less equity than expected in some homes. Many of these homeowners who thought they had 20 percent or more in equity may be surprised when a refi appraisal reveals less than 20 percent. And, equity that doesn’t amount to 20 percent or more in conventional refinance means the borrower will need to carry private mortgage insurance (PMI) for the new loan.  A PMI premium can add hundreds to a monthly mortgage payment. 

But, less than 20 percent equity may be the least of a borrower’s worries. The current economic recession may have some borrowers in a credit pickle.  Lost jobs and missed payments can creep up on a person and damage his or her credit. And, a lower credit score can affect a borrower’s interest rate and even keep someone from qualifying altogether when seeking a conventional refi.  

VA-eligible borrowers can dodge conventional refinance woes by streamlining their existing VA loans. Interest Rate Reduction Refinancing Loan (IRRRL) is a big term for Streamline refinance.  A Streamline can also be called “VA to VA”.  The conditions for VA to VA Streamlines are simple. Streamlines must result in a lower interest rate or lower payment, or both, with the exception of refinancing an existing VA adjustable rate mortgage (ARM).  VA ARM to a fixed rate VA loan Streamlines may result in a higher interest rate due to the nature of ARMs.

Streamlines are a fast and straightforward way for VA-eligible borrowers to refinance.  Streamlines present many benefits for VA borrowers including:

• No need for appraisal
• No credit report required (a simple mortgage payment history will suffice)
• No need for another Certificate of Eligibility
• No money “out of pocket” (fees may be included loan)
• No PMI

VA-approved lenders can make a VA IRRRL as long as the VA borrower is “reusing” his or her entitlement for the same property being Streamlined – in other words for VA to VA refinance. The borrower need not obtain another Certificate of Eligibility (COE) because he or she will most likely be asked to show the lender the original Certificate used on the first VA loan.  The COE will simply prove how much entitlement was used; and therefore, the lender will know how much entitlement can be reused for the Streamline. In some cases where the original VA mortgage was assumed, entitlement may have been substituted for that of the seller. This is still okay as long as the original Certificate of Eligibility shows the lender how much entitlement the borrower will be reusing.

VA loans require borrower occupancy when they are made.  However, the occupancy requirement for IRRRLs is different.  When the VA borrower originally obtained the mortgage for the property being considered for Streamline, he or she certified that it would be borrower occupied.  For an IRRRL, the VA borrower must certify only that he or she occupied it previously.

There are certain circumstances under which a Streamline loan may exceed the sum of the outstanding balance on the existing VA loan; however, a streamline does not typically create a cash-out situation for the borrower. VA funding fee and closing costs may be rolled into the loan, as well as any other allowable fees and up to two whole discount points.

No loan other than the existing VA loan can be paid from the IRRRL proceeds.   Streamlines, like other VA loans, may be made for 15 or 30 years.  VA Streamline borrowers should compare monthly payments for each loan duration to determine which is best for them.

The VA-required funding fee for Streamlines is usually 1/2 percent of the loan amount.  Again, the funding fee may be rolled into the loan so the borrower pays zero money down. There is nothing mandating VA-approved lenders to make IRRRLs, and some simply do not offer the service. Of course, lender requirements for Streamlines may vary.

Why should a VA-eligible borrower be concerned with where his or her VA home loan comes from? Understanding VA Loan Guaranty Program, where the money comes from and how to get a VA mortgage can help eligible veterans get the most from their VA home loan benefits.

The benefits associated with a VA home loan are unique to American veterans and active duty personnel to assist them in buying and keeping homes. Veterans and active military personnel and unremarried surviving spouses who are VA eligible may qualify for VA home financing.  A home financed under the VA Loan Guaranty Program must be used for the borrower’s personal occupancy. 

A VA home loan is actually a VA “guarantied” home loan, because the Federal Government guaranties the loan. The VA Loan Guaranty Service is the organization, within the Veterans Benefits Administration under the Department of Veterans Affairs that is in charge of the home loan program. It surprises many that VA mortgage funding comes from VA-approved private lenders such as banks, savings and loans or mortgage companies, and not from any government entity.

The advantages to choosing a VA loan over a conventional loan might be great for those veterans who qualify.  A VA mortgage, in most cases, is the best option for borrowers with VA eligibility over conventional loans. Qualifying requirements for credit and income for VA home loans can be less stringent than those of conventional home loans.  No down payment is the norm when it comes to VA loans. And, because no private mortgage insurance (PMI) is required with VA loans, many eligible veterans save significantly each month.

A summary of VA home loan benefits is as follows:

• Equal opportunity
• $0 down (as long as purchase price does not exceed appraised property value; VA-approved lender requirements may differ)
• Appraised value is made available to buyer, unlike conventional loans
• Interest rate is negotiable
• Funding fee associated with VA loans may be financed into the loan (down payment may reduce fee, VA disability compensation may be considered for fee exemption)
• Same or lower closing costs as conventional loans
• No PMI
• Assumable mortgage
• Prepayment without penalty
• Homes inspected by VA during construction come with builder warranty and VA assistance to obtain cooperation of builder to fix problems
• VA counseling is available to veteran borrowers in loan default due to temporary financial difficulty

The Veterans Benefits Improvement Act of 2008 became law on October 10, 2008. The new law increased the maximum VA loan guaranty limit to $729,750.  And, for military personnel qualifying for a VA loan, up to100% of the appraised value of a home can now be refinanced. 

The new VA guaranty guidelines help VA-approved lenders establish how much to loan a VA-eligible borrower.  Because VA mortgages are funded by private lenders, it’s up to each lender to determine its requirements for making loans. VA income and credit standards must be complied with; however, lenders can set their own lending policies.

VA-approved lenders often charge lower lending fees with VA loans than with conventional loans. The funding fee is required by the Department of Veterans Affairs.  Lenders can charge from 0% to 3.3% of the loan amount when funding a VA loan.  The total loan amount can include the funding fee to keep the transaction truly $0- down. The VA Home Loan Guaranty Program requires the funding fee “in lieu” of private mortgage insurance or PMI. 

The VA considers veterans who are 10% disabled or more as a result of active military service exempt from the funding fee.  Those not exempt can reduce the fee by making a down payment.

Before being considered for a VA loan, one must obtain a Certificate of Eligibility from the VA.  A VA-approved lender can assist by using automated certificate of eligibility (ACE). Most lenders have access to this Internet-based system and can help with the application required to obtain a Certificate of Eligibility online in a few clicks.  With a lender’s help, ACE can save time provided the applicant is in the system.  Upon receipt of the Certificate of Eligibility, a veteran can go ahead with the VA loan application. 

Talk To Your Lender

Perhaps the most important first step that any home owner should take when they are facing foreclosure, or falling behind on payments is to talk to the VA lender.  Currently, many lenders are offering options to help home owners to get back on their feet.  Many will provide you with the necessary help to allow you to get caught up in payments.  They do not want to own your home, nor do they want to take possession of it.  Rather, they would rather help you find a way to get caught up in payments.  This is most helpful when you can show that you can make monthly payments if you were caught up.

Foreclosure Help

With the recent number of foreclosures happening around the country, there is help for those struggling.  If your VA loan is falling behind, there may be help available to you through government sponsored programs.  You can find this information out when you visit the State Government Housing Office online or contact the VA offices for more help.  In some situations, they can help you to get caught up, to reestablish a good repayment history and to help you work to get the best payment options available.

In some cases, you may be able to refinance your VA loan for a longer term, which would help to lower the monthly payment.  If you are paying more on your VA home loan in interest than is currently valuable, you may want to consider refinancing it to a lower rate which also will cut down on the monthly payment.  These are just a few of the options you have to improving your ability to make monthly payments.

Can Your Finances Help?

One of the worst things you can do for your future as well as your overall credit history is to miss payments on your mortgage.  This is a serious problem that could keep you from owning a home again in the future.  Use your finances wisely.  Here are some tips to help you:

·       Work out a monthly budget and stick with it.  Insure that you have enough income to maintain all of your costs.  If not, cut back on those areas where you can.

·       Increase the income coming into your home in any way you can.

·       Stop using credit cards for purchases as this will cause you to pay more for the same items because of finance charges.

One of the most important things that you can do is maintain your VA home loan.  Preventing foreclosure on your VA loan means to keep up with payments.  Just falling one month behind will get the lender to start the foreclosure process.  Therefore, insure that you have extra savings to help you prevent any problems from happening.