Understanding Your Options to Refinance Your Home
As a veteran, there are many reasons why you might want to refinance your home. Perhaps you would like to lower your current payments by extending the loan period. Maybe you would like to refinance that risky adjustable rate mortgage (ARM) into a fixed rate to avoid future rate hikes. Or, you might want to shorten the life of your loan to pay it off faster and save on interest.
While these are all excellent reasons, refinancing a home loan can often be a daunting experience. However, the IRRRL program can make the process much easier.
What Is the IRRRL Program?
An Interest Rate Reduction Refinancing Loan (IRRRL) is also known as a “VA to VA” or “Streamline” loan. It is a refinance package intended to lower rates of existing VA loans. The only exception to the lower rate qualification is when a homeowner is refinancing from a lower ARM to a potentially higher fixed rate. Since VA refinance rates are at historic lows, IRRRLs are the quickest and cheapest way for military veterans to refinance their homes. IRRRL is also really fun to pronounce as a word, but that’s neither here nor there.
The IRRRL program is designed for all veterans who currently have a VA loan as long as they have made on-time payments for the last 12 months. You will not need to provide bank statements, W2s, a home appraisal or Certificate of Eligibility (COE). Lenders will simply pull a Prior Loan Validation from the VA’s website to verify the existing VA loan. Unlike most VA loans, actual occupancy or intent to occupy may not be necessary as long as you did occupy the home at some point.
Other than the ease of application, there are a few benefits to refinancing using an IRRRL. First, you can lower your payments by refinancing to a lower rate or by extending the term of the loan up to 10 years. You can also choose to pay your home off faster by decreasing the term of the loan from 30 to 15 years.
In addition, you can make up to $6,000 in energy-efficient improvements to your home and include the costs in the new loan. Closing costs, funding fees, and up to two discount points can also be included in the refinanced loan.
What Is a Funding Fee?
Most VA borrowers will incur a 0.5 percent funding fee when they refinance their home (the government does love their fees). As with any VA loan, however, there are waivers for those with a service-connected disability or the surviving spouse of such a veteran. If there is a funding fee, it can be included in the loan package.Most VA borrowers will incur a 0.5 percent funding fee when they refinance their home (the government does love their fees). As with any VA loan, however, there are waivers for those with a service-connected disability or the surviving spouse of such a… Click To Tweet
A Few Conditions
Generally, the program will only approve loans that benefit veterans with lower payments. There are three exceptions: when refinancing an ARM, financing energy-efficient improvements into the IRRRL, or refinancing to a shorter term. This refinance option does not allow “cash back” on home equity, and second mortgages cannot be rolled into an IRRRL. Although the original loan can be refinanced, the second mortgage lender will have to agree to hold the subordinate mortgage.
If you’re ready to refinance your existing VA loan, compare the offers that are available. Applying for an IRRRL is simple and could help you save on monthly payments over the life of your loan.