03 Dec What Is IRRRL? Is This VA Loan Right for You?
Do you have an ongoing VA loan and struggle to make the monthly installments?
VA home loans have helped millions of service members purchase their dream homes with benefits like no downpayment requirement and lower interest rates. However, you might still face some difficulties making monthly payments despite these perks.
This is when an IRRRL might come in handy. VA’s Interest Rate Reduction Refinance loan allows you to refinance an existing VA home loan to a lower interest rate. Also known as a VA streamline refinance, the loan application process is straightforward and comes with flexible guidelines.
What Is a VA IRRRL?
Whether you have a fixed or adjustable (variable) VA home loan, you may be eligible to refinance with a VA Interest Rate Reduction Refinance Loan (IRRRL). This is only the case when your new rate could be lower than your current rate. If your existing VA home loan has a variable rate, an IRRRL allows you to change the adjustable interest rate to a fixed interest rate. This makes the monthly payments stable, which helps you budget better.
So, besides making your monthly payments more stable, this loan can also reduce them, accounting for some significant savings.
Related Article: The Best VA Loan Types
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How Does a VA Streamline Refinance Loan Work?
The primary purpose of a VA IRRRL is its immediate monetary benefit. By lowering your current fixed-rate or converting an adjustable interest rate to a fixed rate, the loan also reduces your monthly installments, making it easy for you to afford the loan.
However, you must remember that you can only refinance the loan if the interest rate offered is lower than the ongoing one. You cannot opt for an interest rate reduction refinance loan because you want to change the lender or have a fixed rate.
Related Article: VA Loan Limits by State
Why an IRRRL Makes Sense for Veterans
There are generally two reasons to opt for a VA IRRRL:
- It reduces your monthly installments by lowering your interest rate.
- It makes your monthly installments more stable by converting adjustable interest rates to fixed interest rates.
However, you might want to keep in mind the closing cost. This cost can add up to thousands of dollars in some cases. So, before opting for the loan, you must be able to afford the closing costs or agree to roll them into the loan. While the lender might emphasize the benefits you are getting, you must evaluate all of your options before deciding.
Wondering what other types of VA loans there are? Here are the additional VA loan options you can consider.
Are You Eligible for a VA IRRRL Refinance?
To qualify for a VA IRRRL, you must have an ongoing VA purchase loan. You can not refinance a non-VA loan into a VA loan through VA streamline refinance. If you are looking for that option, you can go for a VA cash-out refinancing loan.
To qualify for VA IRRRL, the following conditions must be met:
- You have an ongoing VA home loan.
- You are getting an IRRRL to refinance an existing VA mortgage.
- You can prove that you currently reside or used to reside in that property.
- The new interest rate is lower than the current interest rate.
- You are paying the monthly installments on time with no more than 30-days late payment.
Also, in case you have a second mortgage, you must be willing to make the new refinanced loan the first mortgage.
Learn more about VA Loan Assumption.
IRRRL Rates and Requirements
The rates of VA loans are generally lower than that of conventional loans. Here’s a brief on the rates and requirements of a VA IRRRL.
VA IRRRL Rates
As of December 1, 2021, the rate for a 30-year VA refinance loan with a fixed interest rate is 2.5% and 2.674% for an adjustable-rate mortgage.
However, on the other hand, the rate for a 30-year fixed-rate conventional loan is 3.125%.
While this might not seem like a huge difference, VA loans can help you save thousands in the long run with their lowest interest rates and other benefits like lower closing fees.
VA Streamline IRRRL Requirements
In addition to meeting the above-stated eligibility criteria, you must also meet all the lender requirements. You must have a stable income, enough residual income, and a suitable debt-to-income ratio.
Moreover, unlike a VA purchase loan or cash-out refinance, you don’t have to go through the VA appraisal again. The appraisal is an assessment to find out the current value of the home and ensure that the property meets all the Minimum Property Requirements (MPRs). In short, the appraisal evaluates the loan amount.
But because VA streamline refinances follow “easy-to-qualify” guidelines, these loans do not require you to appear for the appraisal.
VA Streamline Refinance and the VA Funding Fee
The VA funding fee is the fee paid to the US Department of Veterans Affairs (VA) for borrowing VA home loans. This fee is paid to support the VA home loan program and ensure that all eligible Veterans can reap the benefits of this revolutionary program.
The VA funding fee for VA streamline refinance loan is 0.5% of the total loan amount. This fee can be rolled into monthly installments.
Who Should Consider the VA IRRRL Program?
While the benefits might seem intriguing, it’s safe to say that this loan is not for everyone. Here are some situations when an IRRRL might be a wise choice:
- You are planning to stay in the house for a longer period of time.
- You are getting lower rates which can reduce your monthly installments.
- You have an ongoing VA loan with an adjustable interest rate.
- You are having trouble making the monthly installments on time.
See how much house you can afford with a VA Loan Calculator!
How to Apply for an IRRRL VA Loan
Here’s exactly how to apply for VA streamline refinance.
1. Find Out If You Qualify
Before applying for the loan, you must ensure that you meet the eligibility criteria defined by the US Department of Veterans Affairs for IRRRL loans.
In addition to this, you must also be ready to fulfill your lender’s requirements, like having enough residual income, a stable income, and an appropriate debt-to-income ratio.
2. Gather Needed Documents
To apply for the loan, you must be ready with all the needed documents. The lenders will ask you for personal information like:
- Social security number
- Phone number
- Age and number of documents
- Valid ID
- VA COE of the ongoing VA loan
Besides this, you would also be needing documents stating your employment history, income history, property information, other assets information, and liability information.
3. Find a VA Lender
With all the needed documents right beside you, you are all set to apply for VA IRRRL. You must get started by finding yourself a lender.
You can contact military banks, credit unions, and mortgage companies to apply for a loan.
4. Follow Your Lender’s Process for Closing
After finding the lender, submit all the documents and follow their process so that you can qualify for the loan. Remember, always be ready with all the documents to avoid last-minute hindrances.
VA IRRRL Pros and Cons
There are many aspects to consider when deciding whether a VA IRRRL is the right choice for you. Here are some of the pros and cons to keep in mind.
VA Streamline Refinance Pros
Here are some of the advantages of VA IRRRL:
- Lower your interest rate
- More affordable monthly installments
- Convert an adjustable rate into a fixed rate to add stability to your payments
- Lower funding fee compared to a standard VA purchase loan
VA Streamline Refinance Cons
Here are some of the disadvantages:
- Eligibility depends on if you’re refinancing an existing VA loan through IRRRL
- Closing costs (can be rolled up into the loan)
- Possible longer mortgage repayment term
How Can a VA IRRRL Lower Your Monthly Payments?
VA IRRRL is a great way to lower your monthly payments and switch to a fixed-rate mortgage. Moreover, with easy eligibility criteria and flexible guidelines, you can turn the loan into something you can actually afford.