Also known as VA Streamline refinancing, the Interest Rate Reduction Refinance Loan (IRRRL) is a type of refinancing exclusively for VA loans that can reduce your monthly mortgage payments.
The IRRRL does not require a home appraisal or a full credit underwriting package, which means you can often get approved even with a lower credit score.
However, you will need to pay VA funding fees and closing costs with this type of refinancing, although you can finance these costs into your loan if necessary.
What is VA IRRRL?
Also known as VA Streamline refinancing, the VA IRRRL refinances an existing VA loan but without many of the requirements that apply in traditional refinancing. This type of refinancing for VA can be a pathway to reducing your monthly payments and securing a low fixed interest rate, without the need for a home appraisal or credit check.
How does VA IRRRL work?
As its name suggests, the VA IRRRL is a smoother refinancing process than those available for other loan types. This is because the IRRRL does not require a home appraisal or a full credit underwriting package, meaning you can likely get approved even if your credit score has declined or your financial situation has worsened since you took out your original VA loan.
This type of refinancing also allows you to finance the closing costs of the VA IRRRL and new VA funding fees into the new loan, enabling you to refinance without any upfront payments. But you have to remember that if you wrap those costs into the loan, you’ll have to pay them – just over an extended period as the additional interest charges accumulate.
“VA IRRRL refinancing is an option that allows homeowners to refinance a previous fixed-rate VA home loan into a new loan, usually at a lower interest rate,” says Robert Greenbaum, Chief Marketing Officer of the American Armed Forces Mutual Aid Association. “But it can also be used to convert an adjustable-rate VA home loan to a fixed rate, making your payments more stable.”
Pros and Cons of VA Streamline Refinancing
Pros
The VA does not require much to prove that you can meet the eligibility requirements for the IRRRL. Generally, no home appraisal or income documentation is needed for the VA IRRRL, and there are no credit underwriting rules. This means you may be able to get approved for an IRRRL regardless of whether your income has dropped, your credit score has decreased, or your home value has declined. Having less paperwork means you can also rely on a quicker approval process.
You can finance closing costs into the loan. Closing costs on the IRRRL are generally lower, including reduced funding fees, and you can wrap all your expenses into the new loan amount. This means you can refinance your home without any upfront costs.
You may pay less monthly and save on interest in the long run. With the IRRRL, you may qualify for a lower interest rate if available. This can mean paying less interest over the life of your loan, paying a lower monthly payment, or both. Additionally, a lower payment can help you build equity in your home faster and shorten your repayment period.
You can convert an adjustable-rate VA loan into a new fixed-rate VA loan. This can save you thousands of dollars in interest over the life of the loan.
Cons
You can
Refinance only through VA IRRRL if the new interest rate is lower than your current rate. This means you may have to wait until the interest rate decreases before you can proceed with refinancing VA IRRRL. An exception to this rule is if you’re moving from a VA ARM loan to a fixed-rate loan, which can be higher than the ARM rate.
You will not be able to pull out any cash with VA Streamline refinancing. Unlike cash-out VA refinancing, IRRRL does not allow you to receive any cash during the loan process. This can be a significant drawback, especially amid the sharp rise in home equity for many people as home values increase. With IRRRL, you will not be able to take advantage of this equity to pay off debts, fund home improvements, or achieve another financial goal.
You will need to pay a small funding fee. There is a 0.5 percent funding fee for VA IRRRL (more on this later). If you are refinancing a $300,000 loan, for example, the cost would be $1,500.
Your lender may still request documentation. While the U.S. Department of Veterans Affairs has no specific credit writing requirements, it ultimately depends on lenders to decide whether they want to request additional documentation. Shop carefully and compare lenders to see what qualification requirements they have for IRRRLs.
Who is eligible for VA IRRRL refinancing?
You will need to meet these basic requirements to be eligible for VA IRRRL refinancing:
- You must currently have a VA home loan
- You must currently live in the home associated with this loan, or you previously lived in it
- Additionally, if you have a second mortgage on your home, you will need to get approval from the mortgage lender to designate the newly refinanced VA loan as the primary mortgage.
- “You also need to be current on your mortgage payments and in good standing with the lender to be eligible,” says Greenbaum. “You will not qualify for VA Streamline refinancing if you have a non-VA loan.”
Is VA Streamline refinancing right for me?
Here are some scenarios where VA Streamline refinancing could be a smart move:
- You want to lower your monthly payments. You can reduce your monthly mortgage payment and pay significantly less over the life of the loan in interest if you successfully pursue a VA IRRRL. This is because VA Streamline refinancing can only occur if you are able to lower your rate (unless you’re moving from a VA ARM loan to a VA fixed loan). The problem is that interest rates are higher now than in past years, so you may need to delay your refinancing plans until rates come down.
- You currently have an adjustable-rate loan. If you have an existing VA loan with a variable rate, your monthly bill could increase when that rate goes up. VA IRRRL can help you lock in a fixed rate. Although rates have risen over the past year, you may still benefit from transitioning from an ARM to a fixed VA loan.
- You are considering renting out your home. Obtaining an IRRRL only requires that you have previously used the home – you can move out and rent the property while still being able to refinance the loan. A significantly lower interest rate can enhance profitability for the property.
How to
Getting a VA IRRRL
Here are the steps involved in obtaining a VA IRRRL, according to the U.S. Department of Veterans Affairs:
- Check your eligibility. Before pursuing a VA IRRRL, check the eligibility standards set by the Department of Veterans Affairs (as mentioned above) to see if you qualify for this type of refinancing.
- Find a lender. To find a lender, shop around among mortgage lenders, private banks, and credit unions, many of which offer VA IRRRLs (the Department of Veterans Affairs does not offer them). Carefully compare rates, terms, and fees after tracking several loan offers. “It’s helpful to contact three or more VA lenders and request a quote,” says Brad Baker, Vice President of Writing and Capital Markets at Equity Now Mortgage Lending and Services. “Apply with each and compare the loan estimate forms side by side to determine the best deal.”
- Be wary of offers that seem too good to be true. Statements that say you can skip payments or receive low interest rates can be very enticing signs of a misleading offer.
- Provide any required information to your lender. Expect to submit your Certificate of Eligibility (COE), which you used to secure your original home loan, to your lender to prove your prior use of benefits. If you do not have the original COE, ask the lender to obtain your COE electronically through the VA home loan program portal.
- Gather documentation. In addition to your COE, you will also need to fill out and submit other documents, including the IRRRL form and a verification of your VA benefits and VA loan summary. You can find the complete list on the VA’s website.
- Follow your lender’s process for closing. Be prepared to pay the fees and closing costs associated with it. Remember, you can include these costs in the new loan instead of paying them upfront, or you can agree to a higher interest rate to offset these fees and closing costs.
How Much Does a VA IRRRL Cost?
You will not have to pay a down payment or mortgage insurance, and you are guaranteed to pay a lower fixed interest rate if you are refinancing from a fixed VA loan. However, there are still expenses associated with a VA IRRRL.
VA IRRRL Funding Fees
Do you remember the VA funding fee you paid when applying for your original VA home loan? There is also a funding fee associated with VA IRRRLs. The good news is that it will only cost you 0.5 percent of the loan amount.
“You may not have to pay this 0.5 percent funding fee if you qualify for disability benefits from the VA,” says Leonard Ang, CEO of iPropertyManagement.
VA IRRRL Closing Costs
Additionally, you can expect to pay closing costs for the new loan, such as recording fees, title insurance, property taxes, and other expenses.
“You may also have to pay a set-up fee of up to 1 percent of the loan value, depending on the lender,” Ang says. “But these fees and any other closing costs can roll into the loan.”
Note that the closing cost fees you must pay for a VA Streamline refinance are generally the same amounts you would pay for any other type of loan.
“Fortunately, with a VA IRRRL, there will be no appraisal fees and limited credit report fees, if any,” says Baker.
Overall, you can expect to pay at least 2 to 3 percent of your total loan amount in combined funding fees and closing costs.
Conclusion
Refinance
Refinancing doesn’t come as easily or quickly as a VA Streamline refinance, provided you are eligible. Without a large down payment, you could end up saving a lot of money depending on your current rate, the new rate, and the terms you can secure. While reviewing your options, use Bankrate’s VA loan calculator to estimate your new payment.
However, if current interest rates are higher than the rate you are currently paying on your VA loan, you will need to wait. Explore your options and alternatives, including refinancing to a conventional loan if needed.
Frequently Asked Questions About VA Streamline Refinance
What are the current interest rates for VA IRRRL?
Although interest rates for VA IRRRL are set by the government, they do vary from day to day. However, you will find that they are much lower than conventional refinance rates. If you’re considering a VA IRRRL, be sure to compare rates with different lenders to get the best deal.
How many times can you use VA IRRRL?
Each time you streamline a VA loan, it replaces your current loan, so there is no limit to how many times you can refinance a home using VA IRRRL.
What are the alternatives to VA Streamline refinancing?
IRRRL is not the only option for refinancing your mortgage. If you want to tap into the equity in your home to borrow additional funds, the VA also supports cash-out refinancing. Another option is to refinance your VA loan into a conventional mortgage. If you are looking for extra cash but can’t or don’t want to pursue a VA IRRRL, consider a home equity loan or home equity line of credit.
Source: https://www.aol.com/va-streamline-refinance-va-irrrl-171553076.html
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