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By September 29, 2010 0 Comments Read More →

VA Mortgage Streamlines: Hotter Than Ever But Harder to Get

Purchase loans continue to sag with the housing market in freefall. But record-low interest rates have helped home refinancing loans surge in recent months.

Scores of military homeowners have seized the opportunity and secured lower monthly payments on their VA mortgage with an Interest Rate Reduction Refinance Loan, better known as a VA Streamline.

This no-frills, low-impact loan tend to feature little of the hassle and paperwork that accompanies a conventional refinance. But the same economic environment that has spurred a refinancing blitz has also made it more difficult for some borrowers to secure a new mortgage.

The VA Streamline

The VA Streamline exists to get veterans into a lower-rate mortgage with lower monthly costs. In fact, that’s one of the loan’s primary requirements — unless the borrower is refinancing an Adjustable Rate Mortgage, the Streamline has to lower the interest rate.

And when it comes to rates, just a single percentage point can make a big difference, depending on the size of your loan. For example, a 30-year mortgage at $250,000 and 6.5 percent comes out to $1,580 per month in principal and interest payments. Lower the interest rate to 5.5 percent and that payment drops $161 per month. The larger loan amount, the larger the potential savings. With a $375,000 mortgage, the drop from 6.5 percent to 5.5 percent translates into a monthly savings of $241.

In today’s fiscal climate, borrowers are finding interest rates south of 4.5 percent.

Veterans who refinance an existing VA loan or into a VA loan are required to pay the VA Funding Fee of 0.5 percent. But like all VA loans, origination fees and total costs are capped to keep the up-front impact to a minimum. Borrowers cannot get cash out on a VA Streamline.


Changing Demands

The VA does not require appraisals, credit checks or any kind of stringent underwriting for an existing VA borrower to qualify for a Streamline. For years, agency-approved lenders followed a similar path. But the times have changed.

Military
borrowers with so-so credit
are finding a much more rugged path to refinancing. Despite the VA’s minimal requirements, VA lenders are taking a long look at credit, debt-to-income and other key financial metrics before issuing a Streamline.

Applicants in many places are now paying for their own appraisals, which lenders are closely monitoring. The era of the no-brainer VA Streamline has come to an end. And that’s made it difficult for some military borrowers to refinance their home loans.

It makes sense from the lender’s perspective, as they’re ultimately on the hook for the bulk of the mortgage in the unlikely event of borrower default. Lenders can still process a refinance with relatively little paperwork — a credit score and an appraisal can do it if you’re refinancing with the same company who supplied your purchase loan. But borrowers should expect to have their credit and finances in order before starting down the path toward a VA Streamline.

The rewards are certainly there. But so are new layers of caution.
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About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender. Follow him on Google+.

 

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