If you bought your home with a VA loan, you may be eligible for a lower rate with a VA simplified refinance. These refinancings are also called interest rate reduction refinancing loans (IRRRLs). Refinances made easy have less paperwork and faster closings, and can be a great way to take advantage of today’s historically low VA mortgage rates.
Benefits of VA IRRRL Streamline refinancing
Lower interest rates. The main advantage of streamlining VA refinances is that they make it easier to lower the rate on your VA loan, compared to other types of home loans.
Lower monthly payments. Lowering your interest rate can also reduce the amount you pay each month on your mortgage bill.
No evaluation of the house. You won’t need to pay for a new appraisal to estimate your home’s current market value.
No income verification. You don’t need to give your lender any documents showing your current income.
Easier credit qualification. You can get approval for a VA simplified refinance with lower credit scores than other loans.
Low financing costs. The current finance charge for IRRRL refinancing is only 0.5% of the loan amount. If you are a disabled veteran or a surviving spouse, you may be exempt from paying these fees.
Add closing costs to your loan amount. You can build many closing costs, including financing costs, into your loan balance.
Faster closures. Because streamlined refinancing requires less paperwork, you can often close your new loan faster, compared to other types of refinancing.
When you compare the VA IRRRL refinancing offers from different lenders, be sure to look at the Annual Percentage Rates (APRs) as well as the interest rates. The APR includes interest charges, as well as other costs and fees that you may have to pay. This helps to better understand the total cost of a mortgage loan. Also, keep in mind that by refinancing, the total finance charge you pay may be higher over the life of the loan.
It is often easier to meet the requirements of VA simplified refinances compared to other mortgages, which is why IRRRLs are referred to as “simpler” refinances. There are still requirements to be met.
VA IRRRL Requirements Streamline Refinancing
Refinancing must make financial sense. VA rules require that refinancing make financial sense to you. (They call this having a “net tangible benefit.”) For many loans, you can meet this rule if you reduce your interest rate by at least 0.5%. Reducing your monthly payments or switching to a fixed rate mortgage may also qualify.
You must have a VA loan. To be eligible for Easy Refinance, you must replace an existing VA loan with a new VA loan.
Be up to date on your payments. To be eligible, you must be up to date with your VA mortgage payments.
Have the VA loan for six months. The VA Rules officially define this eligibility condition by saying that the due date for the first monthly payment of the VA loan you are refinancing must be 210 days or more before the closing date of your new loan refinance. This is about six months for many borrowers. You must also have made six consecutive monthly payments on the VA loan that you are refinancing.
Don’t withdraw money. You cannot borrow money against your home equity with VA IRRRLs.
Certify that you have lived in the house. For VA IRRRLs, you do not need to be currently living in the house you are refinancing. You only need to certify that you have lived in the house in the past.
You do not need a new certificate of eligibility. However, lenders can request a copy of the certificate that you used when you purchased your home. IRRRL refinances have flexible maximum loan amounts. You can refinance your entire existing principal mortgage balance, plus any closing costs that the VA allows you to factor into your new loan.
Closing costs for VA IRRRL Streamline refinancings
IRRRL closing costs vary from lender to lender. You may have to pay “discount points” to get a certain interest rate. (One point is equal to 1% of the loan amount.) You may have to pay origination fees, also known as “lender” fees.
In addition, there may be government registration fees, fundraising fees, and other costs. The VA allows you to add many closing costs to your loan balance, including up to two points of discount and VA financing fees.
Your loan disclosure documents will explain what closing costs are required and how much you will need to pay. Make sure you understand these costs and ask your lender when you have any questions.
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1. Inside mortgage financing, 1Q2020
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