The VA loan program allows active duty service members, veterans, and surviving spouses access to owning a home with zero down payment, no private mortgage insurance, and minimal credit score requirements.
This program allows for exceptional benefits because up to twenty-five percent of the loan amount is backed by the Department of Veterans Affairs (VA). This means that if a VA loan is defaulted on, the mortgage lender is guaranteed a percentage of the loan balance.
Although this program has helped millions of service members purchase a home, what happens if they can not afford their monthly mortgage payments? If you find yourself in this situation, then a VA Interest Rate Reduction Refinance Loan (IRRRL) may be able to help you lower your interest rate which will ultimately lower your monthly payments.
What is a VA IRRRL?
A VA IRRRL is known as a VA Interest Rate Reduction Refinance Loan or a VA streamline refinance loan. These terms are used interchangeably. This is a type of VA-backed loan that allows you to replace your existing VA loan with a new loan that has updated terms.
It is called a VA streamline loan because the process is known to be quick and mostly inexpensive to the lender. This is an excellent option for homeowners that need to lower their interest rate and monthly payments.
It has the ability to move the loan from a variable rate to a fixed-rate loan. A variable rate is known as an adjustable-rate mortgage (ARM). These loans do not have a singular permanent interest rate meaning that they periodically change to reflect current interest rates.
The opposite of a variable rate is known as a fixed-rate loan; it has a set interest rate for the duration of the loan. This allows the monthly payment to be consistent and never fluctuate for the lifetime of the loan.
VA IRRRL Requirements
You may be eligible for an IRRRL if you meet all of the following requirements:
- You have a VA-backed home loan,
- You’re using the IRRRL to refinance your existing VA-backed home loan, and
- You can prove that you currently live in (or previously lived in) the home covered by the loan.
Keep in mind that when you apply for a refinance you will be going through the same loan process that you completed when you were first approved for the loan. This is important to know because some lenders require a minimum credit score and employment verification although the VA does not have these requirements it is lender specific.
You will need to provide your lender with the certificate of eligibility (COE) that you used to get your original loan. If you do not have the COE, your lender can access it through the VA Home Loan program portal.
Pros of a VA IRRRL
Each type of loan offers select pros and cons. Below are the most common pros of a VA streamline loan:
- Lower Interest Rate
- Lower Monthly Payments
- Lower VA Funding Fee
- Can Move from Variable to Fixed Rate Mortgage
- Can Roll Closing Costs into the Loan
If you are using the same lender, they typically do not require another appraisal or credit check. This policy varies by mortgage lender.
Cons of a VA IRRRL
Below are the most common cons of a VA IRRRL refinance loan:
- Must Be Current on Mortgage
- Strict Eligibility Requirements
- May Extend Mortgage Length
- Time Requirements
If you are seeking to refinance your loan, it may be a struggle to get the loan up to date prior to refinancing. It is important to know that there are time requirements. You must make six consecutive monthly payments on your loan and you must wait 210 days between your first mortgage payment and the closing of the IRRRL.
How Can Discount Points Help?
Lenders can charge you discount points to lower the interest rate. Each discount point is worth one percent. If you use discount points, it is known as “buying down” the interest rate since you are making a payment upfront to lower the interest rate.
You can not use discount points with a cash-out refinance loan but are eligible to use up to two discount points into the overall loan with an IRRRL loan. VA mortgage points can be purchased through your loan provider.
Alternative Option to an IRRRL
If a veteran does not have a VA loan but is in need of assistance, then a VA cash-out loan may be the best option. This type of loan is for homeowners who want to trade equity for cash for their home. They can be used to pay off debt, make home improvements, or pay off liens. They also can be used to refinance a non-VA loan into a VA loan.
There is no max loan amount and the max loan length is 30 years. These loans use the current market interest rate, offer no pre-payment penalties, and payment schedule is monthly. If you are eligible for a VA loan, then you meet the requirements for a VA cash-out refinance loan.
VA Streamline Refinance with VA Loans for Vets
If you are in need of lowering your interest rate and monthly payment then an IRRRL may be right for you. Contact the VA Loans for Vets team today at (602) 908-5849 to begin the process!