Do you currently have a VA-backed mortgage and are you wondering about whether a refinance is worth your time? With current interest rates hitting historic lows, you’re not alone in considering when to refinance a VA loan.
Refinancing your VA loan allows you to replace your current mortgage with a new one. A new mortgage can offer better terms and lower interest rates, putting more money in your wallet each month.
In this post, we’ll dig into the VA refinance program and look at the following main points:
- What is a VA IRRRL?
- Key features of a VA IRRRL
- When to refinance a VA loan
- Reasons to refinance a VA loan
- How does refinancing a VA loan work?
- Who’s eligible for a VA IRRL
- Closing costs and VA funding fee
What Is A VA IRRRL?
If you’re one of the more than 24 million American veterans who use the Veterans Affairs Home Loan program, often called a VA loan, you may be able to refinance your home through the VA Interest Rate Reduction Refinance Loan, or IRRRL (pronounced “Earl”).
It’s a quick and easy refinancing tool that requires little documentation and has the potential to reduce your monthly mortgage payment or interest rate.
An IRRRL can also help you switch from an Adjustable-Rate Mortgage (ARM) to a fixed-rate mortgage, stabilizing your monthly payments and making it easier to budget and plan for the future.
The VA IRRRL is sometimes called a VA streamline refinance. This is because it is similar to the Federal Housing Administration loan program of the same name: FHA Streamline Refinance Loan.
Both FHA and VA loan programs use a borrower’s initial application to determine refinancing eligibility, allowing for reduced documentation requirements.
It’s important to note that the U.S. Department of Veterans Affairs does not offer refinancing directly to eligible veterans and their families. Instead, the VA backs specific independent lenders, enabling them to provide the popular refinancing program.
Key Features Of A VA IRRL
Let’s look at some key features of what the VA IRRRL loan program does and doesn’t do.
- Is available to current holders of a VA-backed mortgage loan.
- Enables homeowners to get a new mortgage at a lower interest rate.
- Doesn’t have the same steep credit history requirements that often accompany conventional refinancing options.
- Doesn’t require you to get a new home appraisal done. It uses your original appraisal to determine your home’s value.
- Gives eligible borrowers the option of not having to pay out-of-pocket cash fees or closing costs.
When To Refinance A VA Loan
Deciding to refinance your home is a major life decision. Homeowners need to evaluate their income and expenses and determine their financial goals.
If your goal is to reduce your total monthly payment, interest rate, or move from an ARM to a fixed-rate program, refinancing your VA loan could be the ideal opportunity.
A VA refinancing expert can help you go over your income, assets, debts, and overall situation to give you all of the information you need to determine whether refinancing is best for you and your home.
Reasons To Refinance A VA Loan
There are many reasons to refinance a VA loan. Let’s look at some of the most popular reasons:
- You’d like to save money on your monthly mortgage payments.
- Interest rates dropped since you took out your initial VA mortgage. Refinancing now, with some of the lowest interest rates in history, can save you money on your monthly payments.
- You are looking to pay off your mortgage faster than your original term, without heavy penalties. Or you’d like to shorten your mortgage term.
- Your marital status has changed. You got married, divorced, or have become a surviving spouse and need to change the names listed as the home’s owners.
How Does Refinancing a VA Loan Work?
The VA IRRRL underwriting process is much easier than conventional refinancing loans. It does not require borrowers to submit bank statements, paychecks, or other proof of income documentation, W2s, etc.
Refinancing a VA loan is a simple process:
- Reach out to an approved VA IRRRL private lender in your community. Provide the necessary documentation (we’ll go into that in more detail below).
- Wait for your application to be processed and approved.
- Pay any closing costs, if applicable.
- Continue paying down your new more affordable VA refinance loan.
Who’s Eligible For A VA IRRRL
In addition to currently having a VA-backed loan, you’ll have to meet additional specific criteria.
- Certificate of Eligibility (COE): The COE you used to get your existing VA loan is still valid, but if you’ve lost or misplaced the original COE you obtained to get your initial mortgage, you can apply for a new COE online or at your nearest VA field office.
- Lower Interest Rate: The interest rate for an IRRRL must be lower than your current mortgage rate, or you must be moving from an ARM to a fixed-rate mortgage.
- Credit Score: While the VA IRRRL has a lower credit requirement, your credit score will be an eligibility factor. The better your credit rating, the smoother you’ll find the application process, and the better your interest rate will be.
- Type Of Property: While a VA loan requires that your intended property be your primary legal residence, a VA IRRRL removes that requirement. You can still apply for a VA IRRRL, as long as you once lived in the residence.
Closing Costs and VA Funding Fee
Unlike a conventional mortgage refinancing, the VA IRRRL has a zero out-of-pocket closing cost option. However, it’s important to remember that an IRRRL is not a “no-fee” or “zero-fee” mortgage.
Your lender will roll any closing costs into your mortgage amount to provide you with zero out-of-pocket cash closing costs. This is typically done in two ways:
- Either through your monthly mortgage payment
- Or an annual percentage rate (APR) that is higher than if you paid closing costs at closing
The VA funding fee is an extra cost associated with a VA IRRRL. It is a one-time expense that helps to ensure the program remains financially enduring for all eligible veterans. The fee for this is 0.5%.
As with closing costs, you can opt to roll this fee into your mortgage. Most borrowers who choose this option are required to pay interest on the fee.
There are exceptions to paying the funding fee, including Purple Heart recipients, certain surviving spouses of veterans, and veterans with service-related disabilities.
If you have questions about VA IRRRL eligibility, are curious about current mortgage rates, or whether a VA IRRRL is the right refinancing product for your home, the VA loan experts at River City Mortgage are here to help. Get in touch with us today.