VA Offers 100% Refinance--And Your Current Loan Need Not Be VA

New Program Allows 100% Mortgage Refinance, Up From 90%

If you are eligible for a VA mortgage, you may be able to refinance out of a sub-prime or other home loan and into a 100% loan with no mortgage insurance requirement. These types of refinance mortgages were previously limited to 90% loan-to-value ratios. The Department of Veterans Affairs implemented this change to allow an increased number of qualified veterans to refinance through the VA, saving them money and hopefully even rescuing some from foreclosure.

An additional part of this effort was enacted in 2008, when Congress raised VA's maximum loan amount for this type of mortgage refinancing from $144,000 to as much as $729,750, depending on where the property is located.

How Do You Find Out if You're Eligible?

Eligible borrowers include:

  • Veterans
  • Active duty armed forces personnel
  • Reservists/National Guard members
  • Some surviving spouses

The easiest way to get your Certificate of Eligibility is to simply have a VA-approved mortgage lender get it for you. They have access to an online system called ACE, or Automated Certificate of Eligibility. When shopping for mortgage lenders, check mortgage refinance rates, but also ask if they are VA-approved and if they have access to ACE.

The other option is to apply for your certificate online through the VA. The agency provides detailed instructions; once you have your certificate, you can take it to any VA-approved lender. You can also request it by mail, but that is the slowest and least secure method.

Qualifying for a VA Refinance

Income must be stable, reliable, and anticipated to continue during the foreseeable future. You don't need a two-year history if your income meets these criteria. However, in general, income of a less than twelve month duration is not yet considered stable or reliable. You must have enough assets to pay your closing costs unless they will be rolled into the loan.

To be approved for a VA mortgage refinance, you must pass a CAIVRS check. CAIVRS is the Credit Alert Interactive Voice Response System. It's a database that includes default information from the Department of Agriculture, Department of Education, Department of Justice, HUD, Small Business Administration, Federal Deposit Insurance Corporation, and VA. If you show up on this database, for example, for having defaulted on a student loan or a tax debt, you cannot get a VA mortgage.

Your credit is deemed acceptable if your overall history is satisfactory; isolated derogatory incidents do not necessarily disqualify your approval. Credit is considered to be reestablished following a bankruptcy or other disruption if you have paid your obligations satisfactorily for a minimum of twelve months.

Interest Rate Reduction Refinancing Loan (IRRRL)--or "VA-to-VA" Refinance

This is a streamline mortgage refinance designed to accommodate homeowners who already have a VA mortgage.Some features include:

  • You are not allowed to receive any cash from the transaction
  • You are not required to occupy the property, only to certify that you occupied it at one time
  • No credit underwriting is required
  • Underwater mortgages are no problem because there is no appraisal required

Even if you have experienced credit problems since you took out your current mortgage, you can refinance from an ARM to a fixed rate loan, or to a lower interest rate. In fact, if you are delinquent on your VA mortgage, the lender may approve your refinance and roll your arrearages into your new loan, bringing it current and removing the danger of immediate foreclosure.

The VA Recommends Very Strongly that You Shop for Your Mortgage

The VA recently published a bulletin stating that some lenders solicit refinance business by representing that they are the only ones allowed to approve and fund your IRRRL or any other VA mortgage. They may also claim that some fees they charge are required by the Department of Veteran's Affairs. This is simply not true; any lender can close an IRRRL and the VA does not impose loan charges other than its funding fee.

The VA states that it does not regulate mortgage interest rates and fees, and that your refinance rate is determined by the mortgage market. Therefore it is to your advantage to shop with several mortgage lenders, comparing their Good Faith Estimates (GFEs) and other disclosures and selecting the best deal. Be aware: The VA does not do this for you.