June 22nd, 2019 10:37 AM by Jackie A. Graves, President
are near historic lows, and one particular VA loan refinance option that is
easy to qualify for can enable homeowners to save thousands on their mortgage.
looking to lower the rate on their current VA home loans may find an easy win
with the Interest Rate Reduction Refinance Loan (IRRRL).
The IRRRL is
specifically meant to make an existing mortgage more affordable by lowering the
interest rate to market rates. For homeowners with VA loans, it’s one of the
easiest to apply and qualify for with ridiculously lenient requirements
compared with traditional mortgages.
typically need to have a current VA loan with no late payments and be able to
show stable employment. Other than that, there aren’t many requirements, and
homeowners can refinance up to the Fannie Mae and Freddie Mac loan limits in
As with other
VA loans, borrowers must go through a mortgage company, private bank or credit
union, all of which can set their own terms and fees. The VA doesn’t offer the
loan but backs them and allows the lender to recoup all of their losses in the
event of a foreclosure. Because there is less risk for the lender, they’re more
likely to offer better terms and lower rates.
percent of all VA loans are made without a down payment, according to the VA.
currently have a VA loan and are looking to lower your rate, there are four
main benefits to the IRRRL:
You don’t need perfect credit
need spectacular credit to qualify for the IRRRL VA loan refinance. In fact,
the VA doesn’t even set credit score requirements or require lenders to look at
your debt-to-income ratio or credit history, says Ryan Kelley,
The Home Loan Expert.
“One of the
caveats is that you did have to make the payments on time on your existing
mortgage. You can’t have any delinquencies,” Kelley says.
can be denied if they’re not current with their existing VA loan, and some
lenders will disqualify applicants who had a 30-day late payment in the past 12
individual lenders can write their own credit requirements for these refi
loans, it is a good idea to shop around. Those who do factor credit will
typically want to see a score of at least 620. According to the January 2019 Origination Insight Report by
Ellie Mae Inc. the average FICO score for a VA loan refi was 690.
You don’t have to live in the home
refinance programs only allow homeowners to refinance properties they live in,
that’s not a requirement with the IRRRL.
only needs to demonstrate that they previously occupied the home at some point
during the initial mortgage. This means that homes purchased with a VA loan
then converted into rental properties can qualify. It’s especially useful for
veterans as the average military family moves every three years, according to
Military Family Association.
“Some of them
may have bought a house while stationed in South Carolina then moved to
California but kept that house as rental property. A couple years go by and
points are lower so they could save by refinancing,” Kelley says.
One thing you
will need is the Certificate of Eligibility (COE) you
used to get your original VA loan. You can apply online or through lenders as
most have access to the Web LGY system.
IRRRL officially doesn’t require an appraisal of the home, some lenders may
insist on it and may consider home values and equity. One final caveat with the
home itself is that homes listed for sale do not qualify.
A VA refi can save you money or cut your monthly payment
requirement of underwriting the IRRRL is that it must offer the borrower a
lower interest rate. While those who shorten their loan terms may see higher
monthly payments but lower long-term borrowing costs, extending the term of the
loan could result in lower monthly payments.
According to Bankrate’s
survey of the nation’s largest mortgage lenders as of mid-June,
the benchmark for the 30-year fixed was 4.04 percent and 3.38 percent for the
One rule the
loan does have is that the borrower must be able to recoup their refinancing
costs within 36 months. The VA does have three exceptions to the recoupment requirement:
mortgages that include energy efficient improvements, loans being refinance
from an adjustable to fixed rate, and loans that refinance to a shorter
typically also have lower closing costs, Kelley says. While borrowers must
still pay title fees, escrow account, daily interest and potential points, the
VA caps some of these fees. Borrowers must also pay a .5 percent VA funding
fee, but this is waived for applicants with a VA disability. This fee can be
paid at closing or rolled into the balance of the loan.
are getting a half point lower and have only had their house for a year…they
may have gone and purchased a house a 4.8 percent and now they’re in the 3s,”
Kelley says. “It can be a great deal.”
mortgage refinance calculator can help you determine how much
you could save and when you may break even.
worth noting that refinancing any ARM into a fixed-rate mortgage may save money
in the long term but will also likely come with a higher monthly payment.
A VA mortgage refi is fast and easy
traditional refinance that can require a mountain of paperwork, the ease and
flexibility of the IRRRL means the process is relatively simple. In most cases,
lenders can close these out in less than two weeks, Kelley says.
don’t need an appraisal or income documentation, there isn’t much to
underwriting one…They’re quick and easy to get done,” Kelley says.
that’s not allowable with an IRRRL is a cash out refinance of any kind. A VA-backed cash-out refinance loan typically
has more stringent requirements, including tax returns and W-2 forms for the
past two years, in addition to a home appraisal.
loan other than the existing VA loan may be paid from the proceeds. If there is
a second mortgage holder, the institution must agree to subordinate the lien so
the new VA loan will be the first mortgage.
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