Almost universally when someone is looking to refinance their house they have their credit checked. The lender will then use their score and liabilities to determine if they are likely to be eligible for the type of loan they seek.
The rare exception to this rule is with the VA streamline refinance. This unique program allows the borrower to qualify simply by already having a VA backed loan. The primary stipulation is they have to be current with their mortgage payments.
The reason why the VA allows this is actually pretty practical. The borrower has already gone through the process of qualifying for a VA loan in the past. The VA is already “on the hook” for backing this loan, so there is little downside for the borrower to lower their payment. And by making the process simple and easy more people can take advantage of this opportunity.
This doesn’t mean there won’t be any closing costs on a VA refinance. But no appraisal will be needed, and no income documentation is required. The borrower will need to take into consideration any closing costs that are added onto the loan when determining if refinancing is in their best interest.
A simple calculation will help determine if refinancing is worth the effort. Take the total costs of the loan and divide that by your monthly savings. For this example assume the total closing costs is $2000. If you are saving $100 per month with your new loan, then it would take you 20 months to recoup the cost. If you plan on staying in the house longer than that, then refinancing could be a good savings for you!
The bottom line is that countless veterans who currently have VA loans with higher than current market interest rates should consider looking at the VA streamline refinance, even if their credit isn’t the best.