Andrew Vierra, VA Home Loan Specialist and Branch Manager with WealthWise Mortgage Planning and VALoansOfCalifornia.com, discusses the CARES Act provisions, skipping your mortgage payments through forbearance and the IRRRL.
Circular 26-20-25 that the VA put out on June 30th, 2020.
On June 30th, 2020, the VA put out Circular 26-20-25 outlining the provisions on how you can use the VA Interest Rate Reduction Refinance Loan (IRRRL) to make up your monthly payments, get out of forbearance and not have negative dings on your credit.
In order for that to happen, you must provide reasons for missed payments. On any VA loan, they always want to make sure that if there has been a problem financially that we have made sure that you’re not having issues now. This is so that if you are required to start making payments, you’re not in the same situation as before, which may cause you to miss your payments.
Everything else is still the same. The loan still has to be seasoned, meaning that you have made at least 6 on-time monthly payments on the current loan within the month that the payment is due and that 210 days have passed since the first payment was due on the current loan that you are in. Your mortgage note will tell you the first date that the payment is due.
If the loan has been seasoned, we can close a new loan for you under VA. But you must have had the seasoning prior to using forbearance, meaning before you missed a payment. If you pass that threshold, then we could do the Interest Rate Reduction Refinance Loan.
The other provisions for the IRRRL is that your interest rate must drop by at least 0.5% and whatever costs associated with the loan (underwriting, processing, notary, title and escrow fees) divided by your monthly savings has to break even in 36 months or less.
The provision that VA put out in this circular states that your new loan amount can include whatever payments had been missed. In the past, we weren’t including past miss payments.
But for this new provision, we can take any missed payments, late charges, closing costs, discount points, VA funding fee, energy-efficient home improvements and roll that into the new loan!
This has caused a lot of worry among veterans. They have gone into forbearance, especially if somebody’s in a conventional loan, thinking that they are going to save on their monthly payments, but are unsure about what will happen in the end.
All of this presupposes that you have not gone into a loan modification, and most people were not at the point yet where anybody would have chosen a loan modification. So that’s not really gonna be an issue as we sit here today in July.
If you want more information on this, you can go to the VA website to be able to click on the PDF document to download that. If you’re currently in a VA home loan, in forbearance and are concerned about potential balloon payments and wondering how you are going to make them up, this is the option for you.