If you’re looking for a fast and easy way to lower the payment on your VA loan, a VA IRRRL or “streamline refinance” may be the right choice for you. Keep reading to find out more!
What is a VA IRRRL Refinance?
IRRRL stands for “Interest Rate Reduction Refinance Loan.” Simply put, an IRRRL is a great option for veterans and military families looking to refinance their existing VA loans and take advantage of today’s historically low mortgage rates – all while experiencing less paperwork and a faster closing.
What are the benefits of VA IRRRL Streamline Refinancing?
The primary benefit of a VA streamline refinance is that it simplifies lowering the rate on your VA loan compared to other kinds of home loans. But there are also other benefits to choosing an IRRRL, including:
Lower monthly payments. A lower rate can help reduce your monthly payment or save money in interest over the life of your loan.
No home appraisals. A new appraisal won’t be necessary to estimate the current market value of your home.
No income verification. You don’t need to give your lender documents that show your current income.
Easier credit qualification. At Freedom Mortgage, we work with VA homeowners who have credit scores of 580 and below, so getting approved is easier compared to other loans.
Low funding fee. The current funding fee for IRRRL refinancing is just 0.5% of the loan amount. You may be exempt from paying this fee if you are a disabled veteran or surviving spouse.
Add closing costs to your loan amount. You can roll the funding fee and other closing costs into your loan balance, meaning you pay less out of pocket.
Faster closings. With less paperwork to complete, you can often close your new loan faster than other types of refinancing.
When you are comparing VA IRRRL refinancing offers from different lenders, be sure to look at the annual percentage rates (APR) as well as the interest rates. APR includes interest charges plus other costs and fees you might have to pay. This makes it easier to understand the full cost of a mortgage. Also keep in mind that by refinancing, the total finance charges you pay may be higher over the life of the loan.
What are the IRRRL closing costs?
IRRRL closing costs vary from lender to lender and may include the following:
- Payment for “discount points” to get a certain interest rate (one point is equal to 1% of the loan amount)
- Origination fees (also called “lender” fees)
- Government recording fees
- Funding fees and other costs
The VA allows you to roll some closing costs into your loan balance, including up to two discount points and the VA funding fee. Your loan disclosure documents will explain what closing costs are required and how much you will need to pay. Make sure you understand these costs and ask your lender when you have questions.
What are the requirements for a VA IRRRL?
IRRRLs are called “simpler” refinances because the requirements for them are often easier to meet in comparison to other types of mortgages. Here is a breakdown of the VA IRRRL eligibility requirements:
You already have a VA loan. To be eligible for streamline refinancing, you need to replace an existing VA loan with a new VA loan.
You’ll need to see a benefit from refinancing. VA rules require that refinancing makes financial sense for you. (They call this having a “net tangible benefit.”) For many loans, you can meet this rule if you reduce your interest rate by at least 0.5%. Lowering your monthly payment or switching to a fixed-rate mortgage can also qualify.
You’re up to date on your payments. To be eligible, you need to be up to date on your VA mortgage payments.
You’ve had a VA loan for six months or more. VA rules officially define this eligibility requirement by saying the due date of the first monthly payment of the VA loan you are refinancing must be 210 days or more prior to the closing date of your new loan refinance. This works out to roughly six months for many borrowers. You also need to have made six consecutive monthly payments on the VA loan you are refinancing.
You’re not planning on taking cash out. You can’t borrow money from your home equity with VA IRRRLs.
You’ve previously lived in the house. For VA IRRRLs, you don’t need to currently live in the home you are refinancing. You just need to certify you lived in the house in the past.
You don’t need a new Certificate of Eligibility. Lenders may ask for a copy of the certificate you used when you bought your home, however. IRRRL refinances have flexible maximum loan amounts. You can refinance all of your existing principal mortgage balance plus those closing costs the VA allows you to roll into your new loan.
How do I get approved for a VA IRRRL Streamline Refinance?
Just like with any home loan refinance, you’ll need to meet the lender’s credit and financial requirements to get your IRRRL loan approved.
1. Inside Mortgage Finance, January to June 2020