The VA loan program offers eligible veterans, active-duty service members, reservists, National Guard personnel, and qualifying surviving spouses the benefit of obtaining a mortgage without a down payment or private mortgage insurance. This unique opportunity from the Department of Veterans Affairs (VA) has helped millions achieve homeownership. However, if you currently have a VA loan and are struggling with your monthly payments, a VA Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamline Refinance, might be a viable solution to lower your interest rate.
What is a VA irrrl?
A VA IRRRL, often called a VA Streamline, simplifies the refinancing process for existing VA loan holders. It allows you to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, reduce your interest rate, or adjust your repayment term. Note that this refinance option is only available to those with an existing VA loan.
How Does a VA Streamline Refinance Work?
The term “streamline” indicates a more straightforward and less costly refinancing process compared to traditional refinancing. Generally, it does not require a new appraisal, and underwriting requirements are more relaxed. If you are current on your mortgage payments, you are likely to be approved for a VA Streamline.
When to Use a VA IRRRL
The VA requires that the new loan terms provide an immediate financial benefit, such as a lower interest rate or reduced monthly payment. You cannot refinance solely to switch lenders or for reasons unrelated to your financial situation.
Advantages and Disadvantages of a VA IRRRL
Pros:
- Lower Interest Rate: The primary benefit is securing a lower interest rate, which can save you money over the life of the loan.
- Lower Monthly Payments: You may benefit from lower monthly payments, either through a lower interest rate or extended loan term.
- Lower VA Funding Fee: The funding fee for a VA Streamline is 0.5% of the loan amount, significantly less than the fee for a standard VA loan.
- Simplified Process: The streamlined process is faster and often involves fewer costs.
Cons:
- Must Be Current on Mortgage: You must be current on your mortgage payments to qualify.
- Only for Current Property: The refinance must be for the property originally purchased with the VA loan.
- Eligibility Requirements: You must have an existing VA loan and demonstrate a tangible financial benefit from the refinance.
- Closing Costs: You will still need to pay closing costs, though these can often be rolled into the new loan.
- Extended Loan Term: While extending the loan term can lower monthly payments, it can also increase the total interest paid over the life of the loan.
- Mortgage Seasoning: You must have made six consecutive monthly payments on your existing loan and have at least 212 days between the first payment and the refinance closing.
Eligibility for a VA IRRRL
To be eligible for a VA IRRRL, you must:
- Have an existing VA loan.
- Meet the VA’s owner occupancy requirements.
- Demonstrate a financial benefit from the refinance.
Applying for a VA IRRRL
The application process for a VA Streamline is straightforward:
- Determine Eligibility:
Ensure you meet the basic requirements, including having an existing VA loan and current occupancy of the financed property.
- Prepare Documents:
Gather necessary documents, such as your Certificate of Eligibility and recent mortgage statements.
- Contact a Home Loan Expert:
Speak with a home loan expert to guide you through the process and help determine if a VA Streamline is the right choice for you.
Other information
Typically, you cannot get your money back from a VA IRRRL refinance, but you can be reimbursed up to $6,000 for energy-efficient home improvements completed within 90 days before closing.
Costs of a VA IRRRL are generally lower than traditional refinances, with closing costs and a 0.5% funding fee, which can often be rolled into the loan.
You can buy up to two discount points to lower your interest rate.
Generally, you cannot use a VA IRRRL for an investment property. However, if the property was once your primary residence and you’ve met the occupancy requirements, you might be eligible.
A VA IRRRL can be an excellent option if you have a VA loan and want to lower your interest rate or monthly payments. If you’re considering this refinance option, ensure you meet the eligibility requirements and understand both the benefits and potential drawbacks.
Are you ready to start your VA IRRRL application? Apply online now or speak to one of our Home Loan Experts to determine if a VA Streamline is the best fit for you.
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