VA IRRRL Program
In the above video Josh and Jeff National VA loans talk about the benefits of the VA IRRRL refinance program. If you are a veteran home owner thinking about refinancing you might want to consider the VA IRRRL program. In this article we will take a closer look at the IRRRL program pros and cons. However before we do that lets dig in and breakdown what exactly an IRRRL is.
What is the VA IRRRL Program?
The VA offers several different options for borrowers who are looking to refinance their VA loan. After all, great loan terms now may be disappointing loan terms in 10 years from now. Certainly, if you got your loan ten years ago, it’s probably in your best interest to refinance now to take advantage of lower interest rates. One of the options that the VA offers is called the Interest Rate Reduction Refinance Loan (IRRRL). The IRRRL is the official name for the VA’s streamline refinance option. Streamlines are a very different beast from a standard refinance, and the easiest way to understand what a streamline is is to first explain what a standard refinance is, then discuss where a streamline is different.
In a standard refinance, you are applying for a brand new loan that is used to pay off and replace your current mortgage. The loan that results from the refinance is completely different and separate from the old loan. In practice, this means that you have to once again get a credit report, verify your income, provide more financial documents than you thought existed, and cool your heels for a week or so waiting for the loan officer and underwriter to do their thing. In the mortgage sense, the word “refinance” simply means to pay off one mortgage by using another, with the same property securing the new loan as secured the old loan. The lack of shared information between the old loan and the new loan often comes as a surprise to borrowers looking to refinance. This is where the streamline refinance comes in.
A streamline is different from a standard refinance in that it’s very connected to the existing mortgage. In a streamline refinance, much of the underwriting information is used from the previous loan, and does not have to be made current for the new loan. Your payment history on your existing mortgage is used to supplement your information to make sure that you are able to handle the payments as they are now. To a degree, on an IRRRL, the principle the lender follows is to give you the benefit of the doubt. Since you obviously qualified for the previous loan, and the purpose of refinancing with an IRRRL is to secure a lower interest rate and monthly payment than what you currently have, you are probably qualified for the loan you’ll be getting with the IRRRL. The IRRRL is constructed in such a way that there are few situations where new, updated information is even relevant. Allow me to explain.
One of the VA requirements for the IRRRL (streamline refinance) is that the interest rate becomes lower as a result of the IRRRL. Another requirement is that the monthly principal+interest payment becomes lower as a result of the IRRRL. Here’s an example to explain why this is important: Say your current monthly payment is $1200, and you’ve been making payments on time each month. To a VA-approved lender working on your IRRRL, it’s pretty clear you can handle $1200 a month because you are already handling it. If you can handle $1200, then you can definitely handle $1100, or $1000. However, being able to handle $1200 does not mean you can handle $1300. Make sense? If your monthly payment were to go up, it would bring into question whether you are qualified for the higher monthly payment. As long as the payment goes down, it is assumed that you won’t have trouble making a smaller payment than the one you’ve already been making for who knows how long.
IRRRL program pros and cons.
One of the big pros of the VA Streamline loan is that it is much faster than your standard refinance. Other pros are the VA streamline generally has fewer headaches, they’re easier to qualify for, and they’re cheaper than doing a standard refinance. Unfortunatly one of the cons is that you can not get cash back from this loan. For cash back you will need to check out the VA cashout loan. Other than that there are plenty of awesome benefits to the VA IRRL. If you’re thinking about doing an IRRRL to refinance your home and would like to talk with a VA loan officer call (855) 956-4040 to get all your questions answered.