Written by Isaac F. Davis

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.