The VA loan program provides eligible veterans, active-duty service members, reservists, National Guard personnel, and qualifying surviving spouses with mortgage options without a down payment or private mortgage insurance. Many military veterans and active personnel have benefited from this unique housing benefit offered by the Department of Veterans Affairs (VA).
However, if you are facing challenges with your VA loan payments, a VA Interest Rate Reduction Refinance Loan (IRRRL) could be a solution to refinance at a lower interest rate.
Let's explore what a VA IRRRL is, the advantages and disadvantages of a VA IRRRL loan, and whether it's a suitable choice for your circumstances.
What Is A VA IRRRL?
A VA IRRRL, also known as a VA Streamline, is a simplified refinancing option. The term 'streamline' indicates that the IRRRL process is quicker and easier compared to other refinance options. VA Streamlines allow you to switch from an adjustable-rate mortgage to a fixed-rate mortgage, reduce your monthly interest rate, or modify your repayment term. It's important to note that you must already have an existing VA loan to qualify for a VA Streamline. If you want to access your home equity as cash, you'll need to go through the full VA cash-out refinance process.
The word “streamline” is lender-speak for a simplified and less expensive refinance process. Remember, when you apply for a full refinance, you’re essentially undertaking the same process you went through when you bought the home. That includes a new appraisal, new title search and new recording fees.
With a streamlined process, there’s often no new appraisal and underwriting is often simplified. Your lender may require a minimum credit score and employment verification, but the VA doesn’t. As long as you’re up to date on your mortgage payments, you should be approved for a streamline loan.
You will need to get a new title search performed, and purchase a new title insurance policy for the lender. The streamlined process moves quickly, and the closing costs can typically be rolled into the new loan.
The VA will only allow you to take advantage of a VA Streamline refinance of your loan if the new terms provide you with an immediate financial benefit, such as a lower interest rate or a lower monthly payment. You can’t refinance your loan just because you don’t like your current lender or for any reason that doesn’t directly relate to your finances.
While you research current mortgage rates and consider a few different lenders, you'll also want to understand the pros and cons of refinancing with a VA Streamline. Let’s take a look at some of the benefits of securing a VA IRRRL.
The VA Streamline refinance program offers many benefits over other refinance options.
The most common reason why veterans and their family members may want to refinance a VA loan is to secure a lower interest rate. The VA strongly encourages borrowers to take on a VA IRRRL if the interest rate is lower than their original mortgage loan, unless the loan they’re refinancing is an ARM.
If you’re thinking about refinancing with a VA Streamline, your monthly mortgage payments may decrease. Lower monthly payments may result from an extended term on the loan, which allows more time to pay off the mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.
The VA loan program requires borrowers to pay an upfront VA funding fee that can either be paid at closing, offset with a lender-paid credit, covered by seller concessions (a seller agrees to pay partial closing costs) or rolled into the loan balance.
The amount of the funding fee on a regular VA loan is anywhere between 1.25% – 3.3% of the loan amount, depending on service status.
For a VA Streamline, the funding fee is 0.5% of the loan amount in all circumstances.
Refinancing with a VA Streamline could allow you to move from an ARM to a fixed-rate loan. Adjustable-rate mortgages change over time, depending on rate fluctuations. Fixed-rate mortgages lock in a single interest rate until you pay off your loan.
There are some costs and limits to a VA Streamline to consider. Let’s go over some common drawbacks of refinancing with a VA IRRRL.
You must be current on your mortgage payments in order to refinance with a VA Streamline. This means that you can’t be more than 30 days late on a payment in the last 6 – 12 months depending on how you qualify.
Only service members or qualifying surviving spouses who currently have VA loans can take advantage of a VA IRRRL.
You may change mortgage lenders or your loan terms with a VA IRRRL, but not your actual property. This means you can’t switch this loan into a new property; it must be refinanced into the property you purchased with the VA loan you’re now refinancing.
To qualify for a VA Streamline, you must already have a VA loan. You’ll need to be in good standing with your lender, current on your mortgage payments and be able to prove that the refinance will lower your interest rate.
You’ll have to pay closing costs when you close on your VA IRRRL. With closing costs also comes VA IRRRL funding fees. A borrower can choose to roll over these costs into the new loan balance, which means they’ll still be paying for them with interest on top.
VA loan refinances are flexible, and there’s no rule that says you must extend your mortgage. Depending on the situation, you might have a longer mortgage length – and it might take a longer time to pay off. This could be a negative for some borrowers.
It’s important to note that you must have made six consecutive monthly payments on your loan before refinancing with a VA IRRRL. There also must be 212 days between making your first payment on the initial mortgage and closing on the VA Streamline.
Here’s a brief look at the benefits and drawbacks of refinancing with a VA Streamline.
| Pros | Cons |
|---|---|
|
Lower interest rates strongly preferred |
Must be current on your loan |
|
Lower monthly payments |
Limited eligibility |
|
Lower funding fee |
Reduced closing costs |
|
Mortgage structure change allowed |
Longer repayment terms mean higher costs |
To be eligible for a VA IRRRL, you must meet the following requirements.
VA Streamline refinance candidates must currently have an outstanding VA loan. VA loan stipulations dictate that you can’t take advantage of the VA Streamline process if you don’t have a VA loan.
Some qualified veterans and service members may qualify for a regular VA refinance if they currently have a conventional loan or FHA loan, but these loans require appraisals and aren’t eligible for a VA Streamline.
The VA may allow qualification for a Streamline refinance for a rental home if you previously lived in the residence. If you’re trying to refinance your investment property, you must prove that you resided in the home as your primary residence at some point in the past and can meet the VA owner occupancy requirement.
Proof of residence may include bank statements, pay stubs and bills with your name and address printed on them.
Your lender will have to certify that you gain a tangible net benefit from refinancing your VA loan. This means that the savings you’re getting – either through a lower interest rate or a more manageable monthly payment – justifies the closing costs you’ll pay.
Applying for a VA Streamline refinance only requires a few steps. Let’s go over the application process so you’re prepared if you decide to refinance with a VA IRRRL.
Review your lender requirements to make sure you qualify for a VA Streamline. These basic requirements include that you already have a VA loan and you currently live in the house that’s financed by that mortgage.
Look over your finances and determine whether you’re able to make payments at your current interest rate. If VA IRRRL interest rates are lower than your current rate, you may want to consider refinancing.
One of the best asects of the streamlined process is the minimal paperwork required from the veteran. You’ll need to provide the following documents:
One of the best aspects of the streamlined process is the minimal paperwork required. Throughout the process – from application to closing – you’ll need to complete and submit, or sign the following documents:
It’s helpful to talk to an VA mortgage expert for a VA Streamline to walk you through the VA Streamline process with your specific financial profile in mind.
Not typically. There’s one exception. You can get reimbursed for up to $6,000 of the cost of energy-efficient home improvements completed within 90 days before closing. In some rare circumstances, the VA may approve other reimbursements.
Because you won’t need to pay for a new home appraisal, your VA IRRRL is less expensive than other loan refinance options. a VA IRRRL is cheaper than other loans that reuire an appraisal.
Lenders can choose to charge 1% of the loan amount to cover their costs or itemize for certain allowable fees. The only other charge is the 0.5% funding fee. All other closing costs can be rolled into the loan itself.
Yes. The VA allows borrowers to buy up to two discount points to lower the interest rate and payments.
No!
You can’t use a VA IRRRL to refinance an investment property. VA guidelines state that you must live in the home.
If you're considering a VA IRRRL or need assistance with your VA loan, contact Quick VA Loans at 801-416-3565 or email us at Info@quickvaloans.com . For more information, visit our website: https://mortgagemiracleshappen.floify.com/apply-now.