If you're a veteran who's struggling to make your mortgage payments and facing a potential foreclosure, you might be able to refinance with a VA streamline refinance loan, work out a loss mitigation option (like a repayment plan, special forbearance, or loan modification), or “refund” the loan.
Read on to get an overview of the VA streamline refinance loan, including eligibility criteria, and to learn about various other ways to avoid a foreclosure if you have a VA loan.
A VA streamline refinance is officially known as an Interest Rate Reduction Refinance Loan (IRRRL). An IRRRL is a VA-guaranteed loan that lowers your interest rate, which in turn decreases the monthly principal and interest payments.
If you have an existing VA-guaranteed loan, then you can apply for an IRRRL. The IRRRL must be in first-lien position so if you have a second mortgage, that lien holder must agree to subordinate its loan.
An IRRRL will reuse the entitlement you originally used. (VA loan entitlement is the amount for which the VA will guarantee a loan. Most lenders will lend up to four times the amount of the total entitlement. The basic entitlement available to an eligible veteran is $36,000.)
Example. Say your existing VA loan was initially made for $110,000 with a guaranty of $27,500, or 25%. The new IRRRL is for $112,000. The guaranty on the new loan is $28,000 or 25%, but your entitlement use is still $27,500.
In other words, an IRRRL is a VA-to-VA refinance that reuses the veteran-applicant's entitlement.
Generally, an IRRRL does not require an appraisal, credit information, or underwriting so you can refinance an underwater home. The basis for the loan is the existing VA loan, not the current market value of the property.
Additionally, you don’t have to currently occupy the property to qualify for an IRRRL—though it might be easier to get approved if you live there. You do need to certify that you previously occupied the home, though.
Veterans using the VA Home Loan Guaranty benefit generally must pay a funding fee. The funding fee is a percentage of the loan amount, which varies based on the type of loan and your military category, as well as if you’re a first-time or subsequent loan user, and whether you make a down payment.
You don’t have to pay the fee if you are:
The IRRRL can be completed with no money out of pocket by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs. The funding fee can be paid in cash at closing or added to the new loan.
Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. You can’t get any cash out from the loan proceeds. (To learn more about an IRRRL, go to the U.S. Department of Veterans Affairs website.)
Loss mitigation options are also available to help veterans avoid foreclosure on delinquent loans. The main loss mitigation options for VA-guaranteed loans are:
(To get general information about each of these options, see What's the difference between a loan modification, forbearance agreement, and repayment plan?)
If the servicer fails to exhaust the alternatives discussed here, contact one of the VA Regional Loan Centers.
If you’re having trouble paying your mortgage and facing foreclosure, VA has the discretionary authority to purchase the loan from the private lender and take over the servicing of that loan. This process is called "refunding," which in this sense means “to fund again.” The VA will then work with you on a way to avoid foreclosure.
Refunding is rare, but if you’re in default on your mortgage payments and you can’t get a forbearance, repayment plan, or loan modification even though you can make the mortgage payments—or will have the ability to make them in the near future—you might qualify. To find out about a potential refund, call your servicer. You can also contact a VA regional center to learn more.
The VA assists veterans who are having problems making their mortgage payments.
If you’re a veteran with a VA-Guaranteed loan, the VA can provide a technician who can intervene with the servicer on your behalf and help you work with your servicer to explore all options to avoid foreclosure, as well as conduct financial counseling. (To find the nearest VA Regional Loan Center near you, go to the VA’s Regional Loan Center Contact Information website.)
If you’re a veteran, but your loan isn’t guaranteed by the VA, the VA doesn’t have the legal authority to intervene with the servicer on your behalf. You can, however, call your nearest Regional Loan Center to speak to a technician who can give you advice on approaches to take with your servicer. (Go to the Department of Veterans Affairs website to get more information about what to do if having difficulty keeping up with your mortgage payments.)