Whether you’re a veteran, an active service member, or a surviving spouse, the Veterans Affairs (VA) loans program makes homeownership more accessible. One great option is the VA interest rate reduction refinance loan (IRRRL), designed to help simplify the application process and provide more savings.
But while the VA IRRRL is as straightforward as it gets, navigating it can still be daunting. The Directions Home Loan team is here to walk you through the ins and outs of the VA IRRRL, what it can do for you, and how to smoothly go through the process.
What is a VA Loan?
Supported by the US Department of Veterans Affairs, VA loans provide active service members, veterans, and eligible spouses with a pathway to homeownership. Its key benefits include:
✅No down payment required
✅No private mortgage insurance (PMI)
✅Competitive interest rates
What is a VA IRRRL loan?
The VA IRRRL, or streamline refinance, makes refinancing your mortgage fast and simple. It can lower monthly payments by either reducing the loan’s interest rate or switching to a more favorable payment scheme, such as replacing an adjustable-rate mortgage (ARM) with a fixed-rate mortgage.
Unlike other refinance loans, the VA streamline refinance typically requires minimal documentation. It’s a quicker and simpler choice for individuals who already hold a VA loan.
The key features of a VA streamline refinance
- Lower interest rate: Refinancing to a reduced interest rate can lead to considerably smaller monthly payments.
- No down payment: Through the VA IRRRL, you can refinance without making prior payments.
- No home appraisal: A VA IRRRL refinance simplifies the process by typically eliminating the need for an appraisal.
- No income verification: Veterans don’t typically need to provide proof of income to qualify.
- No closing costs or out-of-pocket expenses: While closing costs may be rolled into the loan balance, the IRRRL often allows you to avoid upfront costs, making it more affordable.
Monthly payments with VA IRRRL
The VA streamline refinance is an excellent tool for reducing your monthly mortgage burden. Some VA interest rate reduction benefits include:
- Lower monthly payments: With more affordable monthly payments, you can allocate funds to other expenses or accelerate debt repayment.
- Stability: Switching to a fixed-rate mortgage from an ARM offers greater stability and predictable payments over the long term.
- Simplified process: The process is less complicated than other refinances, often requiring minimal documentation and no appraisal.
How does a rate reduction refinance loan work?
As a streamlined refinance option, a VA IRRRL eliminates the need for a full underwriting process or extensive documentation, making the experience faster and more convenient.
Here’s how to get your VA IRRRL:
- Apply for the loan: File for the loan through a VA-approved lender.
- The difference between the old and new loans is computed: The new loan pays off your existing VA loan, and you get the savings from the lower interest rate.
- Get a lower interest rate: The lender provides a new loan option with a reduced interest rate.
VA funding fee and closing costs
One aspect of the VA loan program that you should be aware of is the VA funding fee, which helps fund the VA loan program. How much your VA funding fee is depends on whether it’s your first VA loan, what the loan is for, and how much you put down. The VA funding fee for a VA IRRRL refinance is generally lower than the fee for a new VA loan, making it a more affordable option in most situations.
Meanwhile, closing costs are the fees and expenses required to finalize a loan. For an IRRRL, these costs are typically lower than those of other loans and may include appraisal fees, title charges, or lender fees. Some lenders even allow these costs to be rolled into your new loan amount, minimizing your out-of-pocket expenses.
VA IRRRL funding fees
- First-time use: Typically 0.5% of the loan amount
- Subsequent use: Possibly a higher fee, but often less than the funding fee for a new VA loan
The closing cost fees are also generally lower than those of a typical mortgage refinance, making the IRRRL a more affordable option for veterans.
Eligibility and requirements for a VA IRRRL loan
The following criteria must be met to qualify for a VA IRRRL loan:
- Existing VA loan: You should already have an active VA loan to use the VA IRRRL option.
- No late payments: You should have timely and consecutive monthly payments to show your ability to manage your payments.
- Home as a primary residence: The loan must be for your primary residence, not a vacation or rental property.
- No increase in loan amount: The VA streamline refinance loan seldom allows you to increase your loan amount (except for allowable fees, including the funding fee).
VA loan entitlement
The VA loan entitlement is the portion of your loan backed by the Department of Veterans Affairs. It is key to qualifying for a VA loan, including the IRRRL program. If you’ve used your entitlement on a previous VA loan, it may affect your ability to use it for future loans. However, many veterans have remaining entitlement even after using it once.
The amount of entitlement you have will impact your loan-to-value ratio, which is the ratio of the loan amount to the appraised value of your home. A higher entitlement allows you to qualify for better rates and access a larger loan amount.
Since many lenders are experienced in processing VA loans, the process tends to be faster and more efficient than traditional refinances.
Should you choose a VA IRRRL or a cash-out refinance?
The decision between a VA IRRRL and a cash-out refinance hinges entirely on your financial objectives. A VA IRRRL is best if you want to lower your interest rate or monthly payments easily. Conversely, a cash-out refinance lets you access your home equity for significant expenses, though it might involve higher costs and stricter criteria. Ultimately, the best choice depends on your personal circumstances and goals.
VA interest rate reduction refinance loan: The bottom line
The VA IRRRL offers a fantastic opportunity to lower monthly mortgage payments with ease and efficiency. By refinancing an existing VA loan, you can lock in a lower interest rate, eliminate ARM risks, and enjoy a more affordable mortgage. The VA IRRRL is an excellent option if your goal is to refinance for lower interest rates, reduced monthly payments, or a more secure loan.
If you’re ready to take advantage of this great opportunity, contact Directions Home Loan today to learn more about the VA IRRRL process, find out if you’re eligible, and get started with your refinance.
