The opportunity to refinance your mortgage would ideally come with a handful of positives. But if you’re a qualified military borrower who already has a home loan backed by the U.S. Department of Veterans Affairs (VA), you may be able to experience some additional advantages.
If you’re thinking of refinancing your VA loan, you may want to consider a VA interest rate reduction refinance loan (IRRRL), also known as a VA streamline refinance. This type of loan touts a plethora of potential advantages for borrowers.
To figure out if a VA IRRRL might work for you, learn more below.
What is a VA IRRRL or VA Streamline Refinance?
The terms VA IRRRL and VA streamline refinance are used interchangeably, and they refer to a VA refinance option that replaces your current VA loan with a new loan that has new (often more favorable) terms.
What are the Advantages of a VA IRRRL?
There are many reasons that military borrowers decide to opt for a VA streamline refinance. No matter your reason to refinance, there are a couple of advantages to getting one with support from the VA. These may include less paperwork than a typical refinance, no private mortgage insurance (PMI) and lower interest rates.
Borrowers typically opt for a VA streamline refinance to potentially lower their monthly mortgage payments with a lower interest rate or stabilize their payments by converting an adjustable-rate mortgage into a fixed-rate mortgage. They may also be able to shorten their term to potentially pay off their loan sooner or lengthen their term to try to decrease their monthly payments.
How to Know if You’re Eligible
While eligibility requirements may differ between lenders, the VA has some set eligibility requirements on their website. You may be eligible if all of the following are true:
- You already have a VA loan.
- You are using the new loan to refinance your existing loan.
- You can prove you are living in or used to live in the home covered by the loan.
- You must make the new loan the first mortgage if you have a second mortgage on the home.
Make sure to speak with your lender about these requirements as well as any requirements they specifically may have to verify that you’re eligible for a VA streamline refinance.
Refinance Process
Another advantage to a VA streamline refinance is the generally shorter loan process. Although the process can vary depending on your lender and your specific circumstances, these are the typical steps:
- Find a Lender: It’s imperative to work with a lender who is knowledgeable with or has experience with VA loans. Ideally, they’d be more likely to help with any VA loan-specific roadblocks, guidelines or requirements and help you navigate the VA refinance process through closing day. You may even want to consider working with the lender you previously received your original VA loan from.
- Provide Required Documentation: Although there’s generally less paperwork for a VA IRRRL, there are still documents you need to provide. For a full list of required paperwork, you should ask your lender. Organize and submit them in a timely manner to avoid prolonging the process.
- Close on Your Loan: Work with your lender to get through the loan process and to the closing table. Pay any associated fees and close on your new loan.
Costs to Know About
While every mortgage typically has closing costs to consider during the process, the VA has some specific requirements and guidelines for closing costs on VA streamline refinance loans.
VA Funding Fee
Every VA loan has a required VA funding fee. This is to help lower the cost of the loan for U.S. taxpayers since VA loans don’t usually require a down payment or private mortgage insurance.
Allowable and Non-Allowable Fees
The VA limits the fees borrowers can pay. In general, lenders aren’t allowed to charge the borrower more than one percent of the loan amount.
The following items are what the borrower may be able to pay:
- Appraisal and compliance inspections
- Recording fees
- Credit report
- Prepaid items
- Hazard insurance
- Flood zone determination
- Survey
- Title examination and title insurance
- Special mailing fees for refinancing loans
- VA funding fee
- Mortgage electronic registration system (MERS) fee
- Other fees authorized by the VA
Discount Points
Discount points are fees you pay at closing in exchange for a potentially lower rate. One discount point typically equals one percent of the loan amount. And while you may be able to buy any amount of discount points, only two may be included in the loan for a VA streamline refinance.
Know Your Home Loan Benefits
No matter your reason for refinancing your VA loan, it’s important to understand your home loan benefits as an eligible military borrower. The VA offers specific resources to help you through the loan process, and your lender should be able to be with you every step of the way.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
