Department of Veterans Affairs to Provide Mortgage Relief in Wake of COVID-19
VA loan borrowers impacted financially by the coronavirus pandemic now have two additional options to help stave off foreclosure.
VA COVID Relief Programs
The Department of Veterans Affairs (VA) is astutely aware of financial hardships many veterans and active service members face as COVID-19 continues its rampage through the United States. Assisting VA homeowners in distress and providing opportunities to avoid foreclosure is a priority for the department. If a traditional VA refinance or Interest Rate Reduction Refinance Loan (IRRRL) is not possible, VA now offers more alternatives.
VA Partial Claim Payment Program
The partial claim payment option works for homeowners who became delinquent after March 1, 2020, entered into forbearance, and have since recovered financially and are once again able to make their regular mortgage payment. In such cases, the VA will create an interest free second mortgage to pay any delinquent amounts up to 30% of the home’s value.
The partial claim program’s no interest loan requires no payment until the borrower sells the home, refinances, or pays the home off. It is basically a reset of past due amounts that are only repaid when the original loan is terminated, usually from the proceeds after a sale.
Be aware of potential scams. Only your lender or the VA can assist with the VA partial claim payment program or the following modification program.
VA Refund Modification Program
The COVID-19 Refund Modification program piggybacks on the partial claim option with the added benefit of lowering the homeowner’s payment by as much as 20%. The same second mortgage to cover delinquent payments and accrued interest is issued with the same 0% interest, no payment terms. However, this option modifies the existing mortgage by extending the loan term up to 10 additional years.
Use of the modification program is intended to result in a new mortgage payment that is more affordable to the financially impacted homeowner. Again, only the VA borrower's current lender can provide the loan modification. Be wary of companies offering such programs or promising similar results.
Who is eligible for the VA Partial Claim and Refund Modification Programs?
Eligible VA borrowers have until October 28, 2022, to pursue the COVID-19 relief measures. In order to do so, the following conditions must be met.
- The property must be owner occupied. The borrower must live in the property.
- The existing mortgage must have been current on March 1, 2020. For eligibility purposes a mortgage is considered current if it is less than 30 days past due.
- At least one payment after March 1, 2020, must have been missed.
- The existing mortgage must have entered forbearance due to hardship.
- The existing mortgage’s delinquent balance cannot exceed 30% of the home’s appraised value.
These programs are designed to assist homeowners who were impacted negatively by the coronavirus pandemic. Not everyone will qualify. Contact the VA or your lender if you believe you meet the criteria or if you’d like more information.
If you have maintained your payments throughout the pandemic but are interested in lowering your payment, there are refinancing options available.
Can’t I just refinance to a new VA loan?
The VA accounted for over 1.2 million home loans during the pandemic, so not all VA borrowers are experiencing hardships. Interest rates remain historically low, and property values continue to rise throughout the country. If you aren’t behind or delinquent, refinancing is likely a great option.
If you are simply looking to lower your interest rate or monthly payment and your current mortgage is a VA loan, an interest rate reduction refinance loan may help. IRRRL is a streamlined refinance that requires minimal documentation to complete. The idea is if you have been paying your existing VA loan on time, it stands to reason you’ll continue to do so if the payment is lower.
VA Cash-out Refinance
When property values rise, it’s not uncommon for homeowners to use the added equity to finance other expenditures or consolidate other debts. Whether or not your existing mortgage is a VA loan, VA eligible homeowners can use their VA home loan benefits to access their home’s equity.
Additionally, if your current loan is not a VA loan, refinancing to a VA loan is possible whether you want cash back or not.