If you missed out thinking of refinancing your VA mortgage or when you did think of it prevailing 30 year rates were closer to 4.50%, it might be time to take another look. VA rates will vary but as of today you can get a 30 or 25 year fixed rate VA loan for around 3.25% and even have some lender credit available for a VA streamline. The VA streamline is probably the easiest mortgage loan to qualify for and is designed to reduce a veteran’s monthly payment as long as the veteran has shown the ability to pay the mortgage on time for the past six months and no more than one late payment more than 30 days past the due date within the previous 12. Yet even with the easy process, sometimes VA lenders attach additional qualifications making it more difficult to qualify. These additional qualifications are called overlays.
Overlays take qualifying guidelines a bit further than what is required by the VA. For example, the VA streamline doesn’t require an appraisal. Nor does it require a credit score or a credit report. Yet some lenders may decide to order an appraisal anyway just to make sure the value is greater than what is owed on the house. The VA doesn’t require an appraisal but the individual lender may. A credit report isn’t needed but some lenders will pull a credit report along with a credit score.
Are lender overlays legal? Can a lender add more qualifying guidelines to an existing loan? They certainly can as long as they apply those guidelines to all borrowers and not to a select few or an individual loan application. What lenders cannot do is implement an overlay that subverts VA guidelines. For instance, a lender can’t approve a VA streamline that has two payments within the past six months more than 30 days past the due date. Well, the lender can but the loan won’t be eligible for sale on the secondary market.
If you’re in the middle of a VA streamline refinance and your loan officer is telling you some things that seem to run counter to the program, then you might be facing overlays. If you think this might be the case, ask your loan officer. If it is a situation of an additional overlay, all you need to do is pick up the phone and start interviewing other VA lenders that don’t apply the offending overlay.