Do I Have to Live in my Home to do a VA Streamline?
If this question was asked about any other new purchase or refinance option in the entire VA loan program, the answer would be an unequivocal, unnegotiable “Yes”. The VA streamline (IRRRL), however, is a special case. One of the unique benefits of the VA streamline is that the occupancy requirement is much looser than in any other VA loan option. Rather than having to certify that you are either occupying currently (refinance) or intend to occupy (new purchase) the home as your primary residence, in an IRRRL you simply have to certify that you owned the home previously. (See the “Eligibility section on the VA website.) While this is a cool part of the IRRRL, there are some things to consider when contemplating using this trick to your best advantage.
First, is the reason this policy is in place. This policy was put in place specifically to help out active members of the military who have purchased a home at their current station, and receive PCS orders. Particularly for a servicemember who is nearing discharge or retirement, getting PCS orders after purchasing a house can throw a wrench in your plans – sometimes a very devastating wrench. Even for a young servicemember who still has plenty of time left in the military, trying to get a home with a VA loan sold in the time before leaving, along with all the other things that need taking care of can be a major stressor, and in today’s market, even an impossibility. The policy of simply having to have previously occupied the property is a way that an active servicemember can get their home refinanced very quickly and rent out the home while he or she is in a different place, rather than have to try to sell it under a time crunch.
Second, is seeing an IRRRL on this property from the lender’s perspective. What do I mean by this? Well, being frank, the only thing that keeps you paying your mortgage every month (aside from honesty, hopefully), is the fact that if you don’t pay up, you’ll be out on the street. Common sense and historical research agree that in times of financial trouble, a borrower is going to pay the mortgage on their primary residence first and let the second mortgage become delinquent if the borrower does not have the money to pay both. Normally, whether a new purchase or standard refinance, the lender has a chance during the loan application and underwriting process to thoroughly vet the borrower to make sure that taking on this extra risk is really a good idea, but an IRRRL is a streamline refinance – meaning that the lender just uses the credit and employment information from the previous loan. So the lender is taking a much bigger risk with even less reassurance than normal.
Therefore, it should not shock you to learn that many lenders will refuse to do an IRRRL for a property that is not the borrower’s primary residence. In addition, many lenders who are willing to close on an IRRRL for a secondary property will only do so if the borrower is willing to pay a higher interest rate than would be expected on the same loan for a primary residence. There are some lenders, however, like LowVARates, that have enough faith in the responsibility and integrity of our nation’s veterans and military servicemembers that not only do they offer IRRRLs for secondary homes, but they offer the same interest rates for secondary homes as for primary homes. Along with this, we offer a word of caution: sometimes when something sounds too good to be true, its because it is. Remember that any lender offering VA loans must be approved by the VA to do so. Make sure you’re working with a real VA-approved lender before being taken in by their amazing loan terms.
The last thing to remember is that you can only get an IRRRL on a home that is currently financed with a VA loan. If you want to refinance a conventional or FHA loan to a VA loan, you’ll need to use a normal VA refinance to do so. Once that is done, however, no policy is stopping you from refinancing with an IRRRL; as long as the home is financed with a VA loan at the time of applying for an IRRRL, you can use an IRRRL to refinance and experience the benefits of a VA Streamline.