Can You Reduce Your VA Loan Interest Rate?

Can You Reduce Your VA Loan Interest Rate?

Do you have an ongoing VA mortgage? In addition to enjoying some remarkable benefits like no downpayment requirement and easy eligibility criteria, you might also have exceptionally low-interest rates compared to other conventional loans in the market.

But is there another way to lower your rates even more? If you are repaying a current VA mortgage, you might be able to reduce your interest rates by applying for a VA IRRRL.

VA Interest Rate Reduction Refinance Loan, also known as Streamline Refinance Loan, allows you to refinance a VA home loan and qualify for even lower interest rates. Additionally, it comes with other benefits like having easy eligibility criteria and no VA loan appraisal requirement.

Related Article: VA Loan Assumption: An Overlooked Benefit

Reasons to Get an Interest Rate Reduction Refinance Loan

Generally, a VA IRRRL is used to get out of unfavorable loan terms and qualify for a more affordable option. This loan allows you to change your interest rates into something you can afford.

Here are some of the reasons an IRRRL can be a better option.

It Can Lower Your Interest Rate

While a VA purchase loan offers significantly lower interest rates compared to other conventional loans in the market, you can qualify for even lower rates with an IRRRL. This can save you thousands of dollars in the long run.

It Has a Smooth Application Procedure

Getting approved for a streamlined refinance takes about 10-15 days, which is extremely fast compared to an average loan that takes up to 35-40 days. Further, for an IRRRL, you don’t need to verify assets, employment, or income.

The thing that borrowers dread the most is the VA loan appraisal. However, in the case of a VA IRRRL, you don’t need to go through a loan appraisal which saves both time and money.

You Can Roll In Your Closing Costs

The only downside that comes with a VA loan is its closing fees. Ideally, you cannot roll this fee into your monthly mortgage payment. Further, if you decide to refinance a FHA loan, you will still be expected to pay the fees upfront.

However, in the case of an IRRRL, you can roll in the closing fees with your monthly payments. This means that you don’t need to save thousands to cover up the closing fees, making the entire application process not only convenient but also affordable.

It Has Easy Eligibility Criteria

To qualify for a VA IRRRL, you must be a Veteran. In addition to this, you must be able to cover the incurred cost within 36 months and have made at least six mortgage payments for the originating loan. You must also ensure that you are at least 120 days from the day you made your first payment.

It Comes With Easy Occupancy Requirements

To qualify for an IRRRL, you need to prove that you have previously lived in the house or currently live in it. This can be convenient for service members who receive PCS. Getting approved for an IRRRL can help them not have to sell the property. Through IRRRL, they can rent the property, helping them earn additional income.

You Can Easily Qualify for an Energy-Efficient Mortgage (EEM)

In addition to the above-listed benefits, you can also apply for an Energy-Efficient Mortgage while applying for an IRRRL. This can allow you to borrow up to $6,000 for home renovations.

Must Read: VA Loan Calculator

Are You Eligible for an IRRRL?

To establish your eligibility for a streamlined refinance loan, you must meet the following requirements:

  • If an IRRRL is not reducing your monthly income, you might not qualify.
  • Have an ongoing VA loan.
  • Have been paying the current VA loan for about six months.
  • Making up-to-date payments for the ongoing VA mortgage.
  • Have a minimum credit score of 620.
  • Have previously lived in the house or currently reside in the house.

IRRRL Rates and Terms

IRRRL rates might change several times a day. These rates depend on inflation, current mortgage rates, and demographics. Depending on your credit score, credit history, and current mortgage payment history, they also might vary.

As of November 22, 2021, a 30-year VA IRRRL Streamline rate is 2.990% and 2.750% for a 15-Year VA IRRRL Streamline.

When it comes to VA IRRRL terms, you must have an ongoing VA loan to qualify. However, if you do not have a VA mortgage, you can opt for other refinancing options like VA cash out to refinance your non-VA loan into a VA loan.

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In addition to meeting the above-stated requirements, you must ensure that all your payments have been made on-date and you have a desirable debt-to-income ratio. You must also ensure no 30-day late payment in the past year.

You must also pay the VA funding fee paid directly to the US Department of Veterans Affairs to support the VA home loan program. This fee is usually 0.5% of the loan amount. You can pay the fee upfront and get it rolled into your monthly installments.

Another clause you must keep in mind while getting a VA IRRRL is that no cash-out is allowed. This means that unlike a VA cash-out loan, where you can tap into your home’s equity and use the cash to consolidate your debt, you won’t receive any extra cash. This loan will only reduce your monthly installments.

How to Apply for an IRRRL

VA IRRRLs have a streamlined application process. You must follow these steps to apply for loan approval:

Step 1 – Find a Lender

Like VA purchase loans, these loans, too, need a VA-approved private lender. You can get in touch with a credit union, military-friendly bank, or a private bank that works with VA loans.

Try getting quotes from different lenders so that you can compare and choose the best offer. Also, stay away from those lenders who claim to help you skip payments or provide you with exceptionally lower interest rates. These might be fraudulent organizations.

Step 2 – Provide the Needed Documents

After selecting the lender you’ll be working with, provide all of the necessary documentation to them. You might also need your VA Certificate of Eligibility. If you already have the VA COE, you can show that to the lender to verify your VA loan entitlement. If you don’t have your COE, you can ask your lender to get it for you electronically.

Step 3 – Pay Closing Costs and Fees

Unlike a VA purchase loan, you don’t have to go through a VA loan appraisal. All you need to do for an IRRRL is get a lender, submit the documents and pay the closing fees. You can also get all these costs rolled up into monthly installments.

Related Article: VA Loan Limits by County

Things to Consider Before Getting an IRRRL

A lower interest rate may seem exciting, but it’s best not to leap into it without doing a bit of research first.

Here are a few things you might want to consider before getting a VA IRRRL:

Funding Fees

As stated above, the VA funding fee is the amount paid to the VA to support the VA home loan program, usually 0.5% of the total loan amount.

Unless you are exempt, you are liable to pay the VA funding fee. However, you do not need to pay the fee upfront. You can get it rolled into your monthly installments if you are out of money.

You will be exempted from the funding fee if any one of the following conditions is true:

  • You receive VA disability compensation.
  • You are receiving retirement or active duty pay instead of VA disability compensation.
  • You are a surviving spouse who receives VA DIC, and your spouse either went MIA, was a POW, or died in the line of duty or from a service-related disability.
  • You are a service member with a memorandum rating before the loan’s closing
  • You are a purple heart recipient.

Cash Out

If you are looking for a refinancing loan type that will allow you to tap into your home’s equity and consolidate your debts, VA IRRRL is not an option for you.

VA IRRRL only decreases your interest rate and makes your monthly installments more affordable.

If cash out is on your mind, you can opt for a VA cash-out refinance loan, which will allow you to pay your debts or cover your school fees by tapping into your home’s equity.

Closing Costs

Closing costs can be rolled into your monthly payments, but they must also be repaid within 38 months after the loan is taken out.

Is an Interest Rate Reduction Refinance Loan Right for You?

If you have an ongoing VA loan whose monthly payments you cannot afford or you want a better rate, then, yes, an IRRRL is a perfect choice. In addition to reducing your monthly payments, it will cost a lot less than a conventional refinancing loan and offer more flexible terms.

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