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There is no doubt that with extremely low interest rates in the country, now is an ideal time to refinance. Are you a former or current US military member who availed the several benefits of a Veterans Affairs (VA) mortgage in order to buy your home? If yes, you will be happy to know that you may use a VA-backed Interest Rate Reduction Refinance Loan (also known as IRRRL) to refinance easily and quickly and with little documentation.
Did you know that the IRRRL is a VA refinance option that is an excellent program as it makes it simple for veterans as well as their surviving spouses to easily refinance their current home loan to a new mortgage? You should know that VA streamline refinance transactions are among the most common and popular types of VA loans.Homeowners who are already using their earned VA home financing benefits highly favor these transactions. This is because, as a homeowner, you can reduce your monthly mortgage payments by securing a lower interest rate, which is convenient. Another reason for the popularity of these transactions is that a VA IRRRL is an efficient and streamlined process, allowing you to eliminate plenty of red tape when refinancing the existing VA mortgage. This loan is also called “streamline refinance” as the loan underwriter will review your loan using most of the paperwork and documentation from your initial VA loan, such as asset and income verification, among others.
What is a VA IRRRL loan?
We can define a VA IRRRL as a refinancing tool or product that replaces your active mortgage already financed through a VA loan, meaning a loan that the Department of Veterans Affairs has guaranteed. It is worth noting that a VA IRRRL is only available to military veterans and eligible active-duty military personnel (and their spouses
in a few cases) who are repaying an active VA loan.
You should know that the IRRRL helps make your current mortgage more affordable and manageable. It does this by reducing the interest rate. If you are a homeowner with a VA loan, note that a VA IRRRL is one of the simplest loan products you can apply and qualify for. The product also comes with lenient requirements compared to conventional mortgages, which is excellent.
Also, note that one of the most attractive features of this type of loan is that it requires very little paperwork and usually requires almost no out-of-pocket costs, which is great. This is why VA streamline refinance is an excellent way to save money or reduce your monthly payment with quicker closings and less paperwork.
You should keep in mind that after refinancing, the total interest charges can be higher over the term of the loan. If you would like to save on interest charges, you should keep your monthly payment and loan term the same.
Are closing costs an issue for you? If yes, you can roll your closing costs into your total loan amount. Also, you will be happy to know that new appraisals are seldom needed, which may further simplify and expedite the process.Did you know that VA streamline refinance can also help you switch to a fixed-rate mortgage from an adjustable-rate mortgage (ARM), change your loan term, or lower your monthly interest rate? You should have a current VA loan in order to undergo a VA streamline. And if you are looking to convert your home equity to cash, you have to use a full refinance.
Also, it is worth noting that as with your original VA loan, a VA IRRRL isn’t directly provided through the VA. Rather, you can avail it through
independent lenders. However, keep in mind that the VA backs them
How does an IRRRL Work?
Note that a VA IRRRL converts the balance of your current mortgage to a new loan. Only veterans and, in some cases, their surviving spouses, who already have a VA home loan can qualify for VA streamline refinance. However, note that the VA only allows borrowers to refinance their loans if the new loan terms provide them with immediate financial benefits, like a lower monthly payment or a lower interest rate.
Bear in mind that you cannot refinance your loan simply because you do not like your existing lender or for any other reason that is not directly related to your finances. It is worth noting that this rule exists because many unethical lenders in the country were getting very aggressive about selling IRRRL home loans to veterans. Also, note that the VA now requires borrowers to wait until 210 days (at least) have passed or made 6 monthly payments on their existing loan before they refinance.
Did you know that most borrowers use VA refinancing in order to make the most of lower rates and lower their payments? The best thing is that even a modest reduction in the interest rate may lower your payments considerably, saving you a significant amount of money over the loan term.
By refinancing with the IRRRL loan, you can also make changes in some of your loan details. For example, as you are setting up your new loan, you may:
VA IRRRL Refinancing Advantages and Benefits
There are many benefits of refinancing with a VA refinance loan. For example, it can get you a lower interest rate or a considerably lower monthly payment. Do you currently have an ARM (adjustable-rate mortgage)? If yes, refinancing via an IRRRL loan may allow you to lock in a convenient fixed rate with consistent monthly payment and enjoy peace of mind.There is no doubt that the flexibility and convenience of a VA IRRRL loan are other great reasons to consider it. And even if you are many years into your existing VA loan, you still have the option to choose a loan term that can save you money without increasing the time period it will take you to repay it.Here are some important reasons why you may consider switching from a VA loan to an IRRRL loan.
Lower Interest Rate
It is no secret that a VA IRRRL allows you to borrow funds at a lower interest rate. Also, note that as it is a government-backed loan,
professional vets get you the lowest interest rate on the market.
Flexible Loan Terms
Did you know that with a VA IRRRL loan, you don’t have to start over with a thirty-year mortgage? As a borrower, you can request a refinance that matches wherever you currently are on the amortization schedule, whether it is 25 years, 20 years, or 12 years.
Low Funding Fee
You will be glad to know that the funding fee for most IRRRLs is only 0.5 percent of the loan amount. And the best part is that disabled veterans and even some surviving spouses might not have to pay this fee.
No Property Appraisal
Note that in a majority of cases, you don’t need a new appraisal in order to estimate the current market value of your home. And this is great as it saves time as well as the appraisal fee.
As the Department of Veterans Affairs fully backs this loan product, it is solely used to refinance a current VA loan on a home owned by a veteran or active-duty member of the military.
No or Low Upfront Cost
A VA IRRRL does not require another appraisal. This is because you already have a VA loan on your property. Also, it is worth noting that a VA-backed streamline program has considerably lower credit history benchmarks compared to a non-VA mortgage.And this makes the entire refinance process quicker, hassle-free, and less expensive. And you might be eligible to close your loan without paying any money out-of-pocket in closing fees or costs, which is convenient.
VA IRRRL Eligibility
You know that this loan is only for qualified veterans and their surviving spouses who have a VA home loan. This also means that you have already met all the VA’s service requirements and conditions for the IRRRL.As a result, there is no need to obtain a new certificate of eligibility. So, if you have already secured a VA loan, note that you will almost certainly qualify for an IRRRL.However, there are a couple of key considerations that you should keep in mind. First, the Certificate of Eligibility that you had to obtain for the initial VA loan is still fully valid for the refinance. Have you lost this Certificate of Eligibility or can’t find it? If that is the case, you may contact the nearest VA field office in your area or a regional loan center. You can also reach out to the VA in order to receive a copy.
Also, it is important to know that you may only apply for an IRRRL loan if the new interest rate is lower than the current one unless the loan you are refinancing is an ARM. Here is another consideration. As with almost all other home loans, your credit history will likely come into play. While credit standing is considerably more relaxed with VA loans than with traditional loan products, it is best to keep your credit score as high as you possibly can. This is because a lower score may slow things down a little bit and you don’t want that.
A VA home loan requires that the property you purchase with the funds should be your primary legal residence. However, you will be glad to know that for a VA IRRRL, that requirement does not apply. If you have moved somewhere else, but have kept your house tied to the VA loan, for example, as a rental property, then you may still refinance using a VA IRRRL.
Applying for A VA Streamline Refinance
The good news is that applying for a VA Streamline refinance is simple and only requires a couple of steps. Did you know that you may even apply online in order to get all the information that you need from the convenience and comfort of your home?
Make Sure You are Eligible
It is important to review all the qualifications above and then make sure that you are eligible for a VA streamline. You should also sit down with your spouse or family and look at your finances in order to determine whether you can make payments at the current interest rate.
Contact a Home Loan Professional
It is best to get in touch with an expert in the field if you think that a VA Streamline is best for you. Lenders have home loan experts who can talk you through a VA streamline loan with your specific financial profile so that you can make the best decision.
Some Potential Disadvantages and Drawbacks of an IRRRL.
Did you know that an IRRRL is not the most suitable financial option for every veteran? You should carefully consider your reasons and motivation for refinancing. Also, note that:
Are You a Good Candidate?
You may want to consider a VA streamline refinance if you are an eligible homeowner with an ARM. This is because mortgages with adjustable rates usually have higher rates over time. In most cases, you can save more money, especially in the long run, by refinancing an ARM. This is true even if you initially opt for a higher interest rate when switching from an adjustable mortgage to a fixed-rate mortgage.Also, you may be a good candidate for this product if you have frequent trouble keeping up with the payments. A VA streamline is ideal in this case as it can do multiple things, such as lower your interest rate, extend the term of your mortgage, or give you a more
Costs of an IRRRL
Note that IRRRL users have to pay a VA funding fee. You can pay this fee at closing or fold it into your loan. It is worth noting that the funding fee for an IRRRL loan in 2020 is 0.5% of the total loan amount. However, you might be exempt from this funding fee if you fall in one of these three categories
Is Cash-out Allowed with an IRRRL?
In most cases, an IRRRL is a form of refinancing where cash-out is not allowed. However, you may borrow up to $6,000 in additional money in order to cover the costs of energy improvements completed within ninety days before closing. You can ask your lender for more details.
There is no doubt that VA streamline refinancing is a money-saving and simple option for veterans and their surviving spouses. The best thing is that the application process is considerably faster and less stressful compared to most mortgage loans.
A VA IRRRL may also help you refinance to a better interest rate via the VA. However, your new loan terms must offer you an immediate financial benefit, like a lower interest rate. If current interest rates are lower than what you are paying for on your VA mortgage loan, then you should speak to your lender or bank about the VA IRRRL program.