All About VA Streamline Refinance
Interest Rate Reduction Refinance Loan
If you have an existing VA-backed home loan and you want to reduce your monthly mortgage payments or make your payments more stable an interest rate reduction refinance loan (IRRRL) may be right for you. Refinancing lets you replace your current loan with a new one under different terms. Find out if you’re eligible—and how to apply.
Am I eligible for an IRRRL?
You may be able to get an IRRRL if you meet all of the requirements listed below.
All of these must be true. You:
- Already have a VA-backed home loan, and
- Are using the IRRRL to refinance your existing VA-backed home loan, and
- Can certify that you currently live in or used to live in the home covered by the loan
Note: If you have a second mortgage on the home, the holder must agree to make your new VA-backed loan the first mortgage.
Why might I want to get an IRRRL?
Often called a “streamline” refinance, an IRRRL may help you to:
- Lower your monthly mortgage payment by getting you a lower interest rate, or
- Make your monthly payments more stable by moving from a loan with an adjustable or variable interest rate (an interest rate that changes over time) to one that’s fixed (the same interest rate over the life of the loan)
On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.
You’ll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Before you decide to refinance, divide your closing costs by how much you expect to save every month by refinancing to see if it’s worth it. While your lender can advise you on the costs and benefits of the transaction, you’ll want to be sure you understand what you’re getting into.
Streamline Refinance Advantages:
Refinance your existing VA loan to a lower interest rate.
1- This loan can be done with “no out of pocket money” by including all costs in the new loan, or by making the new loan at an interest rate high enough to enable you to pay the costs.
2-The VA does not require an appraisal, income or employment verifications, a credit report or termite report, as long as the current mortgage has been paid as agreed for the last 12 months and is up to date at the time of refinancing.
3- You are allowed to include up to $6,000 in your refinancing loan for the purpose of energy efficient home improvements.
Streamline Refinance Basics:
No assumptions are allowed.
Except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM) to a fixed rate, the refinance must result in a lower interest rate. No loan other than the existing VA loan may be paid from the proceeds of an IRRRL. If you have a second mortgage, the holder must agree to subordinate that lien so that your new
VA loan will be a first mortgage.
The VA has a funding fee of one-half of one percent of the loan amount which may be paid in cash or included in the loan.
You cannot receive any cash back.
You don’t need to use your Certificate of Eligibility (CoE) for the refinance — your lender can use the VA’s e-mail confirmation procedure for interest rate reduction refinance in lieu of a certificate of eligibility.
Any other liens must be subordinated to the VA loan.
How does a VA IRRRL work?
A VA IRRRL is used to refinance one VA mortgage into another. It is an improvement on your old VA loan. With it, you get a lower rate, a lower payment, or both. You can also move from an adjustable-rate loan to a fixed-rate loan. Lenders love IRRRLs. Borrowers do, too, because they are much easier to navigate than regular VA loans.
You’ll still need to meet VA loan eligibility requirements and deal with a Department of Veterans Affairs-approved lender. And the VA is adamant that a refinance must result in a real financial benefit. That means you’ll need to lower your interest rate or reduce your monthly payment by refinancing.
Can you get a cash-out VA IRRRL?
You can’t take cash out from a VA streamline refinance. For that, you’ll generally need a VA cash-out refinance.
One exception is the Energy Improvement Mortgage (EIM), which can be used in conjunction with any VA refinance, including IRRRL. An EIM allows you to add the cost of some energy-efficient improvements to your refinance loan. It’s sort of like a cash-out refinance that’s used for only one thing. Not all upgrades qualify, you’ll be subject to an energy audit after six months and there may be additional underwriting requirements.
IRRRL: Go from ARM to fixed
You can use a VA streamline refi to trade your adjustable-rate mortgage for a fixed-rate loan. That way you’ll lock in your rate and not have to worry about higher mortgage rates down the road.
Moving from an ARM to a fixed-rate loan is the one instance when the VA will allow you to increase your mortgage interest rate on a refi.
If you want to move to a shorter term — say, from a 30-year to a 15-year mortgage — you can do that, too. You’ll save a lot of interest over the life of the loan, but your payment will be higher. The best VA lenders will work with you to make sure that any increase in your monthly mortgage payment will still work within your estimated living expenses.
How soon can you do a VA IRRRL?
In 2018, the Protecting Veterans from Predatory Lending Act became law. It requires a seasoning period of either 210 days from the date of the first payment or after the sixth monthly payment (whichever’s longer) before an existing VA loan can be eligible for an IRRRL. This law came about after complaints to the Consumer Financial Protection Bureau (CFPB) from veterans regarding mortgage refinance offers.
With more lax underwriting and document requirements, the CFPB found that many lenders were happy to do VA IRRRL loans — so much so that some lenders would encourage qualified VA borrowers to refinance frequently, as soon as one to two months after their last refi. This aggressive sales process is called “churning.”
In 2017, the CFPB and the VA jointly issued a warning order to veterans and current service members with VA loans about these unsolicited offers, and in 2018, Congress took action to protect borrowers.
Still, prospective VA borrowers frequently receive direct mail solicitations that appear important, time-critical and official. The offers may look like a check or a bill to entice borrowers to open it. The CFPB notes several red flags you can look for if you receive such offers:
- Low rates with unspecific terms: If an advertised rate does not explicitly state that it’s for a 30-year, fixed-rate mortgage, you might respond only to find out the actual rate is for a 10-year loan or that it assumes you’ll buy discount points.
- Saving by skipping payments: The VA bars lenders from claiming borrowers can use an IRRRL to free up cash because it will give them the option to skip one or two payments.
- Escrow refunds: The CFPB has received complaints from service members who were told they would receive a substantial refund from an escrow account but got much less after closing.
Even with a law against predatory VA lending, it’s important to understand any loan offer you receive and never rush to make a decision — no matter how great the deal seems. If it looks too good to be true, it probably is.
THE NEXT STEPS TO A Streamline REFINANCE
Contact us now to see if you qualify for a Streamline refi by phone: 305-742-8179 or by email: Refi@MaraidLending.com. We are here to help you.