Why VA Refinance Rates Are The Best Deal Going

Are you a vet that hasn’t taken advantage of VA refinance rates? If so, you’re missing out on the best deal going in mortgage loans. If you’ve already got one you could qualify for an Interest Rate Reduction Refinance Loan (IRRRL) to take advantage of low VA refinance rates. Here are the basics you need to know about VA refinance rates to take advantage of the financial benefits you earned by serving.

VA Refinance Rates Are Still At Record Lows

VA home loans are made by private lenders and guaranteed by the Department of Veteran’s Affairs. Like any home loan they come in several different types and your eligibility is based on how long you served or on your current duty status. Your VA loan eligibility can only be used for a home that you personally occupy. The program requires a decent credit score to qualify and offers VA mortgage rates for purchase as well as cash-out refinance.

The Interest Rate Reduction Refinance Loan Is a Gem

Once you’ve got a VA home loan one its best features is your ability to take advantage of VA refinance rates with the program’s Interest Rate Reduction Refinance Loan (IRRL). This is essentially a VA Streamline Refinance which allows you access to lower VA refinance rates without a credit check or home appraisal.

VA home loans are very similar to FHA home loans with the added benefit of not requiring you to carry mortgage insurance. FHA mortgage insurance can add hundreds of dollars to your monthly payment making these loans more suitable for homeowners with credit challenges.

IRRRL Basics You Need to Know

The most attractive feature of the VA streamline refinance is that you don’t need credit underwriting or a home appraisal. You can use an IRRRL to take advantage of VA refinance rates with a no-cost or no cash out of pocket home loan, meaning your new lender will roll all the costs into the balance of the new mortgage or pay your loan origination fee and other closing cost with yield spread premium.

Keep in mind if you choose the latter you’re giving up the lowest VA refinance rates in exchange for the lender paying your fees, which also means you’ll have a higher mortgage payment.

If you’re refinancing an existing Adjustable Rate Mortgage with fixed VA refinance rates keep in mind that your interest rate and payment amount could increase. Also, cash out refinancing is not allowed with the Interest Rate Reduction Refinance Loan and you must already have a VA mortgage on the property.

Many lenders offer IRRRL refinancing with term lengths of 15 or 30 years. Because lender participation in the VA guarantee program is voluntary for lenders you’ll find differences in what banks and lenders offer. It is possible that a lender might deny your application for IRRRL because lenders are not required to participate. Also, differences in closing costs like the loan origination fee make comparison shopping important for any VA home loan.

Comparison Shopping for VA Refinance Rates

Just because you’re getting VA refinance rates doesn’t automatically mean you’re getting a good deal.

In fact, the fees you pay closing on any home loan make or break the deal you’re getting. You’ll have to pay the VA a funding fee which is a percentage of your home loan based on your VA eligibility.

The fees you pay closing on your VA mortgage, regardless of the type are set by the lender and are not regulated by the VA. This includes any discount points, the loan origination fee and any junk fees the lender tries to slip past you.

The less you pay closing on your new home loan the more benefit you’ll get form VA refinance rates. Simple comparison shopping using the Good Faith Estimate will ensure you’re not overpaying at closing if you go about it correctly.

How to Shop for the Best VA Refinance Rates

Before you start shopping for a lender for your VA refinance it’s important to make sure your credit score is as high as possible. You can do this by making sure that your credit reports are accurate at AnnualCreditReport.com and by paying down the balances on your credit cards below 30% of your limit. Once you’re satisfied with your credit score you’re ready to start shopping for a lender.

Do you know which mortgage fees are required and how much is reasonable to pay at closing? Should you pay discount points and what about that loan origination fee?

Discount points are a relic of the 1980s when homeowners were paying for double-digit mortgage rates. Essentially you’re paying this fee to buy down your mortgage rates. For every discount point you agree to pay at closing you typically lower your interest rate by .25 percent. VA refinance rates are still near historical lows making discount points an unnecessary expense that chances are you’ll never recoup.

Despite this lenders advertise VA refinance rates that include discount points to make their offers seem more attractive, often burying the fees in impossibly small print.

When requesting VA refinance quotes make sure you’re getting zero discount point quotes

If you’re interested in seeing how paying discount points affects your monthly payment there is a table on page three of the Good Faith Estimate.

Loan Origination Fees & Yield Spread Premium

The most important fees you’ll want to focus on when shopping for VA refinance rates are found on page two of your Good Faith Estimate. Page two is all about understanding estimate settlement charges. Keep in mind that the fees found on your VA refinance quotes are only “estimates” and could change on your HUD-1 Settlement Statement.

Page two, box A, item one is the loan origination charge. This is the fee paid to the person or company arranging your VA home loan and most brokers will tell you that one percent is reasonable. This might be a reasonable amount; however, you can do a lot better. I’ve reviewed small community and military credit unions that charge as little as $400 for loan origination. Remember, the less you pay for the mortgage origination fee, the more benefit you get from VA refinance rates.

Item 2 of box A is any yield spread premium based on specific, quoted VA refinance rates. For the uninitiated, yield spread premium is a credit paid by the lender for accepting higher than market interest rates. This credit is used to pay the loan origination fee and other closing costs. Yield Spread Premium works like discount points in reverse. The lender pays you the credit because you’re accepting a higher interest rate meaning your payments will also be higher.

Should you accept yield spread premium to pay your closing costs? If you’re strapped for cash and can’t pay the fees yourself this might seem like your only option. Remember that you might also be able to roll these fees into your mortgage balance without agreeing to higher VA refinance rates.

The next section on page two of your Good Faith Estimate is box B, which details specific lender fees that you can and cannot negotiate. Comparing these fees from a variety of banks, credit unions and other lenders will give you a good idea of what’s reasonable allowing you to negotiate to pay less.

How to Protect Your Credit Score When Shopping for Refinance Rates

One last thing to keep in mind when requesting quotes for VA refinance rates. Make sure you’re giving the loan officer your Social Security number. This will ensure that you’re getting an accurate quote. Many homeowners refuse to give their Social Security number when shopping for VA refinance rates because they think they’re protecting their credit score. If you do this you’re relying on that loan officer’s best guess as to what interest rate you’ll qualify, which is almost always a waste of everyone’s time.

The trick to protecting your credit score from excessive inquires when shopping for VA refinance rates is to limit all of your quotes to a two-week period. (14 days) If you do this you’ll only get dinged for one mortgage lender inquiry on your credit report and will protect your credit score.

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Overturning Government Refinance Program Denials

Has your FHA Streamline, HARP 2.0, or VA IRRRL government refinance program application been denied? Despite easy qualification guidelines for streamline refinance programs many lenders are enforcing investor overlays, which are their own rules for approval. If your application for any of these government refinance programs has been denied thanks to overlays here’s what you can do to get your mortgage application approved.

Streamline Refinance Programs For Everyone

Until HARP 3.0, also known as #myrefi is approved there isn’t a streamline refinance program available for everyone. The three programs out there cover millions of homeowners; however, if you meet the minimum requirements to qualify you could still find your lender denying your application for streamline refinancing.

Here’s a quick rundown of the government refinance programs available today.

HARP 2.0 For Fannie Mae & Freddie Mac

If your mortgage loan is backed by Fannie Mae or Freddie Mac and you have very little or no equity then the Home Affordable Refinance Program (HARP version 2.0) is for you. As long as you’re current on you payments and Fannie Mae or Freddie Mac got ahold of your mortgage before June 1st of 2009, you should be HARP eligible.

HARP 2.0 removed the 125% loan to value ratio requirement to be eligible; however, most lenders are enforcing their own loan to value requirements as low as 105% in some cases.

The problem is that many lenders use these so called investor overlays to protect themselves from bad home loans. The government levies stiff penalties against lenders for writing bad home loans with any government refinance program so there is still significant risk for lenders with streamline mortgage refinancing.

FHA Streamline & VA IRRRL Mortgage Refinancing

If you have an FHA or VA home loan you won’t be HARP eligible because the FHA and VA have their own streamline refinance programs. Not having late payments is a common theme with any government refinance program so as long as you don’t have any 30-day late payments you should qualify despite credit, income, employment status or loan to value ratio. The VA streamline refinance works the same way and is called an Interest Rate Reduction Refinance Loan. The problem here again for both FHA streamline and the VA’s IRRRL are investor overlays.

Streamline Mortgage Refinancing Difficult

Existing government refinance programs are intended to make streamline refinancing widely available to American homeowners; however, very few are getting access to these programs. Many, but not all mortgage lenders enforce their own guidelines well above and beyond what the government requires.

These special rules are the investor overlays I mentioned earlier and include minimum requirements for credit score, income verification and even loan-to-value ratios.

The Government Wants to Stop Lender Overlays

The Federal Housing Finance Agency and the Federal Housing Administration have expressed concern that lender overlays are preventing homeowners from taking advantage of today’s low refinance rates. While there is no public policy regarding overlays HARP 3.0 is rumored to include lender indemnification to reduce risk and eliminate these investor overlays.

You can’t really blame lenders for enforcing their own rules. Penalties on a single bad FHA home loan can be in excess of a million dollars and with the current system all of the risk falls squarely on the lenders’ shoulders. If the government offers banks and lenders indemnification it would limit or completely eliminate risk for the most recent lender making overlays unnecessary.

How to Get Your Government Refinance Approved

Program overlays vary from one lender to the next so if you’re denied the best thing to do is shop around. Smaller community based or military credit unions like Navy Federal Credit Union or USAA are an excellent starting point when seeking approval rather than mega banks like Wells Fargo or Bank of America. This is true of any government refinance program from the FHA, VA or USDA. If first you’re not approved, just keep applying.

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What is Streamline Refinance?

If you’re considering refinancing you’re likely to run across the term Streamline Refinance. What is a streamline refinance and does it apply to you? Despite government refinance programs like HARP 2.0, many people are having trouble qualifying for mortgage refinancing. Streamline refinance is a quick and easy alternative to mortgage refinance loans with lower costs and qualifications. Here are the basics you need to know if a streamline refinance is available to you.

Streamline Refinance Definition

The term streamline refinance usually applies to FHA home loans. The VA and USDA have their own refinance programs with different names but I’ll get to those in a moment. Streamline refinance is a way of taking advantage of today’s low refinance mortgage rates with less legwork and paperwork than conventional mortgage refinancing. For some homeowners this will be an option where their application would otherwise be denied.

There are requirements that must be met to qualify depending on the program. With the FHA for example, there must be a tangible benefit to refinancing. Lowering your interest rate, changing from a fixed rate mortgage to an adjustable rate mortgage or lowering your term length from 30-years to 15-years are all examples of tangible benefits.

In addition to demonstrating tangible benefit you must be current on your payments. There are government programs for homeowners who are unable to make payments (the Home Affordable Modification Program HAMP is one such program); however, with any government refinance program you must not have late payments.

Streamline refinance programs will not allow you to take cash out. If your goal for mortgage refinancing is to borrow against your home equity a streamline refinance is not the program for you.

FHA Streamline Refinance Program

One of the advantages of an FHA streamline refinance is that income and employment verification may not be required. There are also minimal credit requirements to meet; although, the FHA is toying with the notion of not approving homeowners that have active collection accounts on their credit reports.

President Obama lowered mortgage insurance premiums for FHA Streamline Refinance to make the program available to more homeowners.

Streamline refinance programs cut through red-tape and allow for less paperwork, faster underwriting, and lower fees. In most cases you will not be required to pay for a new appraisal. This is a rundown of the guidelines set in place by the FHA. Individual lenders can impose their own requirements so if your existing lender is giving you a hard time you can kick them to the curb and find another lender.

If your existing mortgage is an FHA home loan and is in good standing you can lower your payment and save a lot of cash at closing with the FHA streamline refinance. If you’re not with the FHA check with your lender as many offer similar programs.

VA Streamline Refinance

The VA doesn’t call the program by this name; however, the agency’s Interest Rate Reduction Refinancing Loan (IRRRL) does the same thing. The Veteran’s Administration has the same basic rules for the IRRRL program and taking cash out is not allowed. You will not need a new appraisal or income/credit verification and you have the option of rolling your closing costs into your balance. You don’t need to get a new certificate of eligibility from the VA so the process is much quicker.

HARP 2.0 Program Requirements

HARP isn’t a streamline refinance program but a government refinance program for underwater homeowners. The program requirements under HARP 2.0 allow for unlimited loan-to-value ratios; however, we’re finding that many lenders are imposing their own LTV requirements. If you’re finding your HARP application is still being denied because of your LTV try shopping around for a different lender. Community based credit unions are an excellent starting place as they have less stringent in-house underwriting requirements.

The basic requirements for the Home Affordable Refinance Program (HARP 2.0) are that your home loan is owned by Freddie Mac or Fannie Mae and they must have purchased it before May 31st, 2009. You must have less than 20% equity in your home to qualify for HARP. Lastly, you must be current on your payments with zero late payments in the last six months and only one late payment in the last year.

HARP 2.0 doesn’t have the same advantage as a streamline refinance when it comes to the paperwork and lender fees so it’s important to shop around comparing things like the origination fee.

Shop Around for the Best Deal

No matter what type of mortgage refinancing you’re in the market for it’s important to shop around for the best mortgage lenders. One of the most common mortgage mistakes is focusing only on getting the lowest refinance rates at the expense of fees.

Overpaying the loan origination fee or paying unnecessary discount points will make it much more difficult, even impossible to recoup your out-of-pocket expenses. If you don’t break even on your closing costs you’re going to be losing money no matter how great your interest rate.

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Which Government Refinance Program?

Do you need help with your home mortgage loan but don’t know which Government Refinance Program is right for you? Asking the government for help feels a lot like going to a rich relative with your hat in your hands; however, it doesn’t have to be that way.

You’re a taxpayer and these programs exist to help YOU so don’t hesitate to take advantage of any program Uncle Sam is willing to offer. The problem is making sense of all the different Government Refinance Program acronyms and qualifying rules.

Figuring out your taxes is bad enough these days…peeling back the layers of bureaucracy surrounding a Government Refinance Program is enough to make you crazy.

Government Refinance Program Red Tape

The main problem with any Government Refinance Program is that they’re not user-friendly. Sorting through qualifying rules for HARP, HAMP, and FHA, VA or USDA Streamline Refinance is like reading income tax code. To make it easier for you to decide which Government Refinance Program is right for you I’ve broken the rules down into three easy to digest segments based on the type of mortgage refinancing you need. I’ve also included resources for getting help once you know which Government Refinance Program is right for you.

Start Here For Government Mortgage Help

Most Government Refinance Program help is geared towards homeowners who are underwater in their existing mortgage and cannot qualify for today’s low refinance rates from the best mortgage lenders based on unfavorable loan-to-value ratios. What does this mean to you? If you owe more than your home is worth then you’re underwater. Anyone with a loan-to-value ratio greater than 80 percent, meaning you have less than 20 percent equity in your home can relate to the difficulty this causes when trying to get a mortgage refinance application approved.

HARP 2.0 If You’re Underwater & Can Afford The Payments

If your loan-to-value ratio is greater than 80 percent AND you can afford your monthly payment HARP 2.0 is the Government Refinance Program for you. HARP 2.0 is the newly revised Home Affordable Refinance Program and was recently overhauled by President Obama. Under the new rules you don’t have to document income to qualify, verify employment, or worry about your loan-to-value numbers. There is a catch to HARP 2.0 and you need to be current on your payments. Also, Fannie Mae or Freddie Mac must have your mortgage loan. You can find out more about qualifying for HARP 2.0 by calling a HUD mortgage specialist at 888-995-HOPE (4673).

HAMP If You Cannot Afford Your Payments

HAMP is not a Government Refinance Program but is a loan modification program. HAMP is the acronym for the Home Affordable Modification Program. If you qualify for HAMP your lender will cut your mortgage payment to 31 percent of your gross monthly income. This would allow you to take advantage of today’s low refinance mortgage rates without taking out a new home loan. The list of qualifying rules for HAMP is a bit longer than HARP 2.0; however, here’s the lowdown:

The mortgage loan in question must be on your primary residence and you must have purchased your home by December 31st, 2008. Your mortgage balance must be less than $729,750 and you’ll have to document income and your bills to qualify. Finally, you cannot have been convicted of a felony related to fraud within the last decade. You can find out more about qualifying for HAMP by contacting the HUD help line at 888-995-HOPE (4673).

FHA & VA Streamline Government Refinance Programs

Lastly, if you have a FHA, VA or USDA home loan you may qualify for streamline refinancing. Many of these programs allow you to qualify for mortgage refinancing without getting an appraisal, verifying employment or documenting income. The main benefit of a streamline refinance is a simpler process to refinancing and reduced fees. You’ll have a choice of 30-year fixed, 15-year fixed refinance rates or Adjustable Rate Mortgage loans.

As with any Government Refinance program there are requirements to meet for a streamline refinance and you need to be current on your payments. FHA streamline refinance applications are handled by lenders so enlisting the help of a good mortgage broker can get you qualified while avoiding unnecessary fees. If you’re a member of a community-based credit union that’s also a good starting point for your mortgage shopping.

If you have a VA or USDA mortgage loan you’ll want to contact those agencies directly to find out more. You can learn more about the VA’s Interest Rate Reduction Refinancing Loan by contacting the Veterans Administration at 1-800-827-1000. If you have a USDA mortgage loan you can reach a Rural Development Staff Member at 1-800-670-6553.

Watch Out for Unnecessary Mortgage Fees

Just because you get into a Government Refinance Program doesn’t mean you don’t have to be on the lookout for lender junk fees or markup. The closing costs you pay including the origination fee or unnecessary discount points reduce the benefit you’re getting from mortgage refinancing. You recoup these out-of-pocket expenses by lowering your payment amount; the more you pay at closing the longer it takes to break even.

Do you have an experience with a Government Refinance Program that you’d like to share? Please leave a comment below…

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You can learn more about getting the best deal for your next home loan regardless of which Government Refinance Program you’re in by checking out my free Underground Mortgage Videos.

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