VA IRRRL is a way to reduce your interest rate with a VA loan. Prepare for what will come back around, interest rate reductions!
There are not many IRRRLs going on right now due to the nature of the rate increases but this strategy and product should not be ignored! Learning about this product could stage you for a quick reduction in your monthly payments when the rates come down. One of the best things about this product that I have done MANY of is that it can be done even when the owner doesn’t live in the property!
One of the reasons I waited so long to reduce my first interest rate purchases was because I had bad information about the IRRRL process! So get this, I held a loan at 2% higher of a rate than I needed to for almost 4 years because a loan officer at the time told me because I did not live in the property I could not utilize this tool!
Let’s talk about what the VA Interest Rate Reduction Refinance Loan (IRRRL) is and how you can be staged to execute it on your current VA loan if the rates are higher than the market and or how you can be standing by to execute it when the rates drop!
What Is A VA IRRRL?
VA IRRRL, or the Veterans Affairs Interest Rate Reduction Refinance Loan, is a program specifically designed for homeowners with a current VA home loan. The primary purpose of the VA IRRRL program is to help veterans take advantage of lower refinance rates and reduce their monthly mortgage payments.
The program was introduced by The Veterans’ Disability Compensation and Housing Benefits Amendments of 1980 to assist veterans with refinancing their existing VA home loans. The VA IRRRL program offers several benefits for veterans, including reduced documentation requirements, lower closing costs, and the ability to refinance without a new appraisal or credit check.
The VA Streamline Refinance is a term that lenders commonly use to refer to the VA IRRRL program. By using this term, lenders can quickly identify the product and provide the necessary information to the borrower regarding refinance rates, eligibility requirements, and other program details.
It’s important to note that the VA IRRRL program is only available to veterans with an existing VA home loan. Additionally, to qualify for the program, the refinance rates must be lower than the current interest rate on the original VA home loan, and the borrower must be current on their mortgage payments.
How Does IRRRL / VA Streamline Refinance Work?
VA streamline refinance programs, including the IRRRL, and other refinancing options essentially work by reducing your monthly mortgage payment by lowering the interest rate on your home loan. This can be especially beneficial for those with an adjustable rate mortgage (ARM), such as a 5/1 ARM, as it stabilizes the monthly payments. An existing adjustable or variable rate loan that changes on a monthly basis can be converted to a fixed interest rate loan that is stable from month to month, which helps borrowers better predict and manage their monthly expenses.
In addition to lowering the interest rate, refinancing typically requires an appraisal of the property to determine its current value. The costs associated with refinancing, such as appraisal fees and closing costs, can vary depending on the lender and the loan program. However, VA IRRRLs often come with lower closing costs than other refinancing options, which can make them a more affordable option for veterans.
It’s important for borrowers to compare the interest rates and costs of refinancing options to determine if the potential savings outweigh the costs associated with refinancing. Additionally, borrowers should consider their long-term financial goals and how refinancing fits into their overall financial plan. By taking the time to understand the costs and benefits of refinancing, borrowers can make an informed decision about whether or not to pursue a VA IRRRL or other refinancing option.
VA Streamline IRRRL Terms and Requirements
With this loan program there’s no new appraisal on the home and the underwriting required for the loan is very simplified so that’s one less thing you will have to worry about.
The lender will require the basic underwriting requirements like a minimum credit score/history, pay stubs, and overall trustworthiness to pay the monthly payments. Note that the VA does require these things to make it easier for people to apply to the program. The lender is the gatekeeper though so what they say goes and you have to go through a lender to utilize the program. The program requires a funding fee that is .5% of the loan amount unlike the regular VA loan which is between 1.25%-3.3% of the borrowed amount..
VA IRRRL Advantages And Disadvantages
Some VA IRRRL advantages:
- Ability to lower the interest rate
- Lower payments resulting from the interest rate reduction
- Streamlined underwriting
- Structure of the loan being changed from a adjustable rate to fixed rate
- Lower funding fee of .5% vs 1.25%+
- Refinance a VA loan into a investment property
Some VA IRRRL disadvantages:
- The closing costs include a funding fee
- Refinancing makes your mortgage clock reset (if you choose)
- You must hold the loan for 210 days /6 months before you can complete the IRRRL
Who’s Eligible For A VA IRRRL Refinance?
Since it is VA backed it’s only open to the 1% of the population and their families who are serving, served in the past in the US armed forces, or have qualified military affiliation. The next eligibility qualifier is the member has to have a current VA loan, you cannot qualify for the VA IRRRL if you do not have a current VA loan on a property. The borrower also has to have resided in the home at some point. The lender will require a minimum credit score that is around 580+, a stable source of income verified by the IRS, and no current liens/unpaid child support claims against them.
How To Apply For An IRRRL VA Loan
Your lender will work with you to collect the following paperwork:
- VA Form 26-0286 (VA Loan Summary Sheet)
- Certificate of Eligibility (Stating your qualified for the loan)
- Va Form 26-8923 (IRRRL worksheet)
- VA Form 26-1820 (Report and certification of loan disbursement)
- VA Form 26-8937 (Verification of VA benefits)
- Lender certification that borrowers current mortgage payments is current
- Credit score
- Income verification
- Debt to income details
What are the costs of VA IRRRL?
The VA IRRRL program can be an excellent option for veterans looking to reduce their monthly mortgage payments and save money over the life of the loan. One of the primary advantages of the VA IRRRL program is that it has significantly lower fees compared to traditional refinancing options, which can help veterans save money in the long run.
VA IRRRL loans typically have lower interest rates and shorter loan terms than traditional mortgages, which can help homeowners pay off their loans faster and save money on interest over time. For example, homeowners who switch from a 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage through the VA IRRRL program can save tens of thousands of dollars in interest over the life of the loan.
Another benefit of the VA IRRRL program is that closing costs can be rolled into the loan in some cases, which can reduce the out-of-pocket expenses for borrowers. With this option, some borrowers may even receive cashback at closing, which can be used to pay for home improvements or other expenses.
Overall, the VA IRRRL program is an excellent option for veterans who want to lower their monthly mortgage payments and save money on interest over the life of the loan. With lower interest rates, shorter loan terms, and reduced fees, the VA IRRRL program is an attractive option for veterans looking to refinance their current VA home loan.
VA IRRRL Rates
The VA IRRRL program offers some of the most competitive mortgage rates on the market due to the backing of the Veteran Affairs department. The VA provides a guarantee to lenders, which reduces the level of risk they assume when extending a loan to a veteran. This guarantee, along with the overall low-risk profile of veterans, allows lenders to offer lower interest rates compared to other loan options. The reduced risk also means that lenders can process VA IRRRLs faster and with less documentation compared to other types of refinancing.
It is important to note that while VA IRRRLs can be an excellent option for veterans looking to refinance, they may not always be the best option for everyone. Borrowers should compare VA IRRRL rates to other loan options and determine whether the potential savings justify the costs associated with refinancing. Additionally, it’s important to consider the long-term financial goals when deciding whether or not to refinance.
Alternatives to VA streamline refinance
- The first option of choice that comes to mind is the other VA backed refinance program called a VA cash-out refinance loan. This loan allows you to refinance up to 90% of your home and pull out the difference in equity into your bank account.
- The second option is to refinance into a conventional home refinance loan. They dont require mortgage insurance or funding fees but limit cash out refinance to 80% loan to value.
Can I use the VA Streamline Refinance for an Investment Property?
The VA streamline refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), can be used for an investment property, provided that you currently reside in the property or can prove that you have lived in the property in the past. This means that if you have previously purchased a property with a VA Loan, you may still be eligible for an IRRRL as long as the rate you will be getting is a qualifying drop in interest rate and meets the required timeline. The qualifying drop in interest rate refers to a reduction in the interest rate that meets the VA’s standards for a “net tangible benefit” to the borrower. The required timeline refers to the fact that the refinance must take place within a certain amount of time from the original loan, and there must be a period of time between the first loan and the refinance to show that the borrower has made payments on time. Therefore, if you are an investor who has purchased a property using a VA loan and you have lived in the property or currently reside in it, you may still be able to take advantage of an IRRRL to potentially lower your interest rate and save money.
ADPI Pro Tips
Pro tips on VA Interest Rate Reduction Refinance Loan (VA IRRRL):
- Shop around: It’s important to compare rates and fees from multiple lenders to get the best deal on your VA IRRRL. Don’t just go with the first lender you come across or the one who contacts you first.
- Check eligibility: Make sure you are eligible for the VA IRRRL program before you apply. You must have an existing VA home loan to qualify for this program.
- Consider your goals: Determine your goals before applying for the VA IRRRL program. Do you want to reduce your monthly payments, shorten your loan term, or take advantage of lower interest rates?
- Timing is key: Keep an eye on interest rates and refinance when rates are low to maximize your savings.
- Understand the costs: Although the VA IRRRL program has lower fees than traditional refinancing options, there are still costs associated with refinancing. Be sure to understand all the costs involved before making a decision.
- Know the requirements: Make sure you meet all the requirements for the VA IRRRL program, including having a good payment history on your current VA home loan.
- Work with a reputable lender: Choose a lender with experience in VA loans and a good reputation in the industry. You want to work with someone who can guide you through the process and answer any questions you may have.
By following these pro tips, you can maximize the benefits of the VA IRRRL program and save money on your mortgage payments.
This blog was written in collaboration with our absolutely amazing DoD SkillBridge employee: David
