VA Streamline Loan Laws
Veterans Affairs streamline loans are designed to help existing mortgage customers lower their interest rates and payments and avoid foreclosure. These loans were originally implemented to give a leg up to struggling veterans. The loan process can be challenging -- especially since the lenders who actually finance the loans may or may not follow the VA lending guidelines strictly.
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Interest Rate Reduction Refinancing Loans
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Interest rate reduction refinancing loans, or IRRRLs, are the same as VA streamline loans. The loans are designed specifically to help the borrower by offering a tangible benefit. In most cases, that benefit is a lower interest rate. However, if an existing VA adjustable rate mortgage is refinanced into a fixed-rate loan, and the rate increases, this is still considered a tangible benefit.
No Credit
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The streamline loans are considered "streamline" since theoretically they should be approved and funded more quickly than traditional mortgages. One of the reasons is because the VA does not require that a credit check be performed by the underwriting department. This process, which is standard in traditional underwriting, can delay the mortgage refinance and, thus, speeds up the streamline loan process.
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No Appraisal
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Similar to the no credit check, the VA also stipulates that no appraisal is required on the property if the borrower is seeking a VA streamline loan. This also speeds up the process as an appraisal can take anywhere from three to five days, depending on the appraiser's schedule, the comparable property analysis and the resulting value of the home.
VA vs. Private Lenders
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The VA is not a direct lender. While it sets the standards for underwriting on VA loans, all VA loans are financed by individual, private lenders. Thus, each lender has its own set of underwriting standards, and often they proceed with a credit check and appraisal. After all, the lender itself is taking on the risk burden, not the VA, and the lenders want to be protected.
Other Restrictions
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Streamline loans do not let borrowers take any cash out of a new refinance. As stated, the benefit of the streamline loan is to decrease the cost of the new loan -- usually through an interest rate reduction. Therefore, the loan balance of the new streamline loan cannot exceed the value of the current mortgage obligation.
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