The VA IRRRL program offers veterans a unique way to refinance their current VA loan. The program, called the Interest Rate Reduction Refinance Loan, helps veterans do exactly as the name suggests – lower their current interest rate. However, there are parameters regarding how low your interest rate must be in order to qualify for the streamlined VA loan. Understanding the qualifications you need for this loan program can help you be successful in your attempt to refinance.
A Lower Payment
The basic parameter of the VA IRRRL program is that your new payment must be lower than your current VA loan payment. This pertains to borrowers refinancing a fixed rate loan into another fixed rate loan. The VA does not specify a specific amount that your rate or payment must decrease. Basically, you just have to save money each month in order to increase your monthly disposable income. It is the VA’s mission to make daily living expenses easier for veterans to afford, which is why they offer the VA IRRRL program.
There are exceptions to the above rule, however. If you are not refinancing a fixed rate loan, and rather refinance an ARM into a fixed rate loan, your payment doesn’t have to decrease. In most cases, a borrower’s payment will increase as a result of refinancing out of an adjustable rate loan into a fixed rate. This is especially true if you refinance before the interest rate adjusts. If you still have the introductory interest rate, it is probably lower than the interest rates currently available. Because the fixed rate loan is less risky than an ARM, though, the VA allows this as part of the streamline refinance process.
How to Qualify for a VA IRRRL
Qualifying for the VA IRRRL program is among the easiest loans to qualify to receive. If you currently have a VA loan, you already made strides. In addition to this requirement, you must:
- Not have more than one late payment on your current VA loan in the last 12 months
- Prove that you lived in the property up until the date you applied for the VA IRRRL
- Prove you used your entitlement to obtain the current VA loan
That is literally just about everything you need in order to qualify for a streamline VA refinance. The lender does not have to pull your credit, verify your income, or determine the value of your property. In many cases, borrowers are upside down on their mortgage because their home lost so much value during the housing crisis. These borrowers can still refinance with the program!
That being said, some lenders may enforce a few more restrictions on the loan. For example, some lenders may perform a verbal Verification of Employment to make sure you are gainfully employed. Other lenders may try to find out an estimated value for your home to determine if you are too far upside down on your mortgage. These are lender requirements, though, not the VA. This means not every lender will require the same thing. Some may be more lenient than others, which you can only find out by shopping around.
Finding the Best New Interest Rate
When you apply for the VA IRRRL program, you do not have to use your current lender. You are free to apply with any lender that offers VA loans. This could help you find the best new interest rate. For example, your lender might not provide the lowest rate because they know your financial load and don’t want to give you new funds. Another lender, who has never dealt with you before, though, may happily supply you with a new VA loan. Even if you apply for the VA loan with several lenders you do not know, you will likely get a wide range of interest rates quoted to you. Some lenders have a higher ability to sustain risk while others need to minimize the risks they take. You will see this reflected in the interest rates they offer. The lenders who cannot take a lot of risks will charge higher interest rates than those willing to stick their neck out a little bit.
The Housing History is the Key
The key factor to obtaining approval for a VA IRRRL is to have a positive housing history. If you have late payments, no lender can approve you because the VA doesn’t allow it. Even if you have one late payment, though (more than 30 days), the lender has to take that into consideration. It automatically puts you in another category in terms of risk. If you do have a late payment in the last 12 months, it is probably best to wait until a full 12 months pass from that late payment. This way you can provide new lenders with a clean housing history. This will give you the best chance at securing a low interest rate.
The VA IRRRL is often very worthwhile because you are able to save money on a monthly basis without having to pay too many closing costs. Yes, you have to pay the funding fee again, but the remaining closing costs are typically low because there is not a lot of work involved in the loan. If you are able to recoup the closing costs rather quickly, you have a fast break even point, which means more money in your pocket on a monthly basis before you know it.
If you have a VA loan, it is worth it to look into the current rates to see if you would qualify for the VA IRRRL program. Your new interest rate does not need to be that much lower than your current rate to qualify. However, you want to make sure it is worthwhile to refinance so that you don’t start a new term over and only save a few dollars every month. Take a close look at your options and how they would affect your financial situation to determine if the VA IRRRL is right for you.