You have a VA loan and you want to refinance, but you are worried about your credit. You know you’ve had a few financial mishaps recently so you are sure your credit score dropped. Who will refinance your loan?
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Luckily, as a veteran, you have the option to use the VA Interest Rate Reduction Refinance Loan. You may also hear it called the VA Streamline Refinance Loan. No matter what you call it, there’s some great news. The VA doesn’t require lenders to pull your credit to secure this loan.
As long as you can prove that you paid your last 12 months of mortgage payments on time and that you benefit from the refinance, the VA will allow the loan.
Why Don’t You Need a Credit Check?
It seems crazy. How can a lender give you a new loan without a credit check? Here’s why.
The VA believes that your credit score doesn’t carry a lot of weight. Instead, they focus on your mortgage payment history and disposable income. But, for the VA IRRRL program, lenders don’t even have to verify your disposable income. They rely strictly on how well you pay your mortgage.
Here’s the reason why. The VA IRRRL program doesn’t allow you to increase your loan amount. If it does increase, it will only be in the slightest amount because you can’t take cash out of the home’s equity. You can only refinance the outstanding principal balance and a few closing costs. If you have a timely mortgage payment history with your prior mortgage payment and your new mortgage payment decreases, you should be able to make those on time as well. Your disposable income should increase as a result of the lower payment, which puts you in an even better situation.
Find out if you are eligible for a VA loan.
If you had a few mishaps and your credit score fell, it’s not an indication that you will default on your mortgage. Your mortgage payment history is indicative of your mortgage payment patterns.
Do All Lenders Follow This Rule?
Unfortunately, not all lenders are lenient enough to go without checking your credit. Some lenders pull your credit because they need to see your mortgage payment history. For one reason or another, they might not have proof of your mortgage payment history so they use your credit report as the verification.
Other lenders just aren’t comfortable not pulling your credit. Whether they want to see your payment histories on other accounts or they want to see how many new loans you have, they have their reasons. Some lenders go as far as setting a minimum credit score requirement for the loan.
If you come across a lender that will pull your credit, but you don’t want that, you can always shop around. As long as you apply for the VA streamline loan with VA-approved lenders, you are free to use any lender that will approve your loan situation.
How a Credit Check can be Beneficial
Keep in mind that a credit check could be a good idea in some cases. If you are already in over your head in debt, a qualified lender will realize that when looking at your credit. While they might not give you the answer you want to hear, it could be a good way to prevent you from refinancing into a loan you can’t afford.
Typically, lenders pull credit when they know your payment might increase. If you are applying for a loan with a shorter term or a higher interest rate, the lender needs to be careful. They want to make sure you can still comfortably afford the payment without getting overwhelmed. If a lender doesn’t feel you can comfortably afford the loan, they could be doing you a favor, even if you don’t realize it yet.
The VA streamline loan doesn’t require a credit check, but you might be hard-pressed to find a lender that doesn’t pull it. If you are worried about what they will find, be honest with your loan officer. He can then offer you advice on the next steps to take, which may even include telling you to shop for a lender that won’t pull your credit.
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