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Posted 02/01/2017

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VA Streamline Refinance: About The VA IRRRL Mortgage Program & VA Mortgage Rates

VA Streamline Refinance (IRRRL) mortgage guidelines

In this article:


What Is A VA Streamline Refinance (IRRRL)?

A VA streamline refinance replaces an existing VA loan with another VA loan with a lower rate. It's called a "streamline" loan because it requires no appraisal, and no verification of employment, income, or assets to qualify.

Why Get A VA IRRRL?

If you have a VA home loan you’d like to refinance, the VA Interest Rate Reduction Refinance Loan, or IRRRL, may be the easiest and least expensive way to get it done.

This program is easy because the Veterans Administration does not require you to provide proof of employment or income. You don’t have to supply banks statements, and there is no minimum credit score.

It can be cheaper because the VA does not require a home appraisal, and your funding fee is discounted, too.

Click to see your VA loan eligibility (May 26th, 2017)

Who Is Eligible For A VA IRRRL?

If your current mortgage is a VA home loan, and you did not assume it from someone else, you’ve already met the VA’s eligibility requirements. The IRRRL may also be called a VA-to-VA refinance for this reason.

Unlike the VA mortgage you used to purchase your home, however, the IRRRL allows you to refinance vacation homes and rental properties.

Refinancing To A VA Loan From A Non-VA Loan

You can only refinance with a VA Streamline mortgage if the loan you already have is a VA mortgage. However, you can refinance from another type of loan to a VA mortgage, if you meet VA eligibility guidelines.

The biggest advantage of a VA mortgage over conventional (non-government) home loans is that the borrower needs no down payment or home equity.

There is no monthly mortgage insurance, but you do pay a funding fee. This fee varies according to your military status, loan-to-value, and the number of times you have used your VA eligibility before.

In order to qualify for a VA Loan, you must have served 181 days during peacetime, 90 days during war time, or six years in the Reserves or National Guard. You may also qualify as the spouse of a service member who was killed in the line of duty.

In general, nearly all active duty and/or honorably discharged service members are eligible for a VA purchase or VA streamline refinance loan.

How To Qualify For A VA Streamline Mortgage

To qualify for a VA Streamline, you must meet the following requirements:

  • Be current on your mortgage with no more than one 30-day late payment within the past year. There are exceptions to this rule, and your lender must get prior approval to originate a loan with this issue.
  • Refinancing must provide a “net tangible benefit.” That means the terms of your refinance loan must be better than those of the mortgage you have now.
  • You must certify that you occupy or previously occupied the property. Note that the home can be a rental or vacation house now, as long as you can certify that it was your primary residence when you purchased it with your VA loan.
  • You must have previously used your VA Loan eligibility on the property you intend to refinance.
  • If you have a second mortgage, the second mortgage lender must agree to subordinate its loan to the new VA home loan.

As indicated above, there are exceptions to the 30-day late rule.

IRRRLs For Delinquent Borrowers

You can VA Streamline Refinance a loan which is behind in payments or delinquent. Your lender will want to know that the cause of the delinquency has been resolved. and you must be willing and able to make the payments on the new VA loan.

Lastly, you will be asked to provide a letter to explain the delinquency, and provide supporting documentation. The Department of Veterans Affairs will make a final determination whether the IRRRL should be approved.

In most cases, the borrowers on the IRRRL are the same as the ones on the existing loan. However, that’s not required. You can add or remove borrowers from the existing mortgage. What’s allowed:

  • Divorced veteran alone
  • Veteran and new spouse
  • Veteran’s spouse alone if the veteran has died

Some borrower changes are not possible for an IRRRL:

  • Veteran’s divorced spouse alone
  • Different spouse alone because the veteran died

A good loan officer should be able to walk you through these minimal requirements fairly easily. And remember, you don’t have to refinance with your current lender.

IRRRL Guidelines And Lender Overlays

While the VA does not require lenders to check your credit, order an appraisal or verify your employment (except for refinances that cause your payment to increase significantly), individual lenders can impose these requirements.

Additional, stricter guidelines are called “lender overlays,” and if you’re worried about being able to jump through these extra hoops, ask lenders upfront if they have overlays, and what they are.

What Is “Net Tangible Benefit?”

“Net tangible benefit” means you will be better off after refinancing your VA mortgage than you were before refinancing.  Your new IRRRL interest rate and principal and interest payment must be lower than that of your current loan. There are, however, a few exceptions to this rule:

  • You are refinancing an ARM with your IRRRL,
  • The term of the IRRRL is shorter than the term of the loan being refinanced, or
  • Energy efficiency improvements are included in the IRRRL.

Loans that meet the above exceptions may end up with higher payments, especially if:

  • Your financing costs are wrapped into the new loan,
  • You finance discount points and / or the VA funding fee, and / or
  • You refinance your ARM to a higher fixed rate.

A significant payment increase triggers additional underwriting. If your total monthly payment (PITI) increases by 20 percent or more, the lender must verify your income and certify that you have enough to make this larger payment.

What About A Cash Out Va Streamline?

You can use a VA IRRRL to finance qualified energy-related improvements. This addition to the loan may be referred to as an EEM, or energy-efficient mortgage.

The VA allows you to add qualifying energy-efficient improvements (up to $6,000) to your VA loan refinance amount. Allowable energy improvements must be completed before you close on your EEM.

This means you must cover the cost of your improvements upfront, finish them within 90 days of your IRRRL, and get reimbursed when you complete your IRRRL refinance.

If the VA approves an IRRRL for a borrower who owes late payments and late charges on the old loan, these arrearages and “reasonable” legal costs can be added to the IRRRL loan amount.

In addition, refinancing costs may be added to your IRRRL loan amount if you prefer not to pay them out-of-pocket.

If you want to actually cash out home equity (which you can to 100 percent of your property value with a VA loan refinance, you must pay the same fees and qualify as a borrower refinancing a non-VA loan to a VA loan. That loan is not considered an IRRRL.

If you look at current mortgage or IRRRL rates, you’ll probably notice that the Annual Percentage Rate (APR) is much lower for VA home loans than other comparable programs.

That’s partly because other loan programs require mortgage insurance if you have less than 20 percent home equity or down payment, while the VA allows you to finance or refinance up to 100 percent of the property value without mortgage insurance.

There is a funding fee, which can be wrapped into the loan amount if you prefer. In addition other closing costs, including up to two discount points (to buy yourself a lower interest rate) can also be wrapped into the IRRRL.

The funding fee for an IRRRL is just .5 percent. In addition, your loan will probably not require an appraisal. That could save you several hundred dollars over a conventional loan.

Other fees are at the lender’s discretion or go to third parties like title companies. The VA reported in 2012 that some lenders were telling applicants that certain fees were required by the government.

In fact, the only required fee is the funding fee. That’s why you should compare Loan Estimates among several competing lenders before choosing a provider for your IRRRL.

VA Streamline Mortgage Rates

Understand that just because this loan is government-backed doesn’t mean the government sets its interest rates. Know also that you can go to almost any licensed lender for your VA loan refinance.

You don’t have to use your current lender, no matter what they tell you. The VA actually put a notice on its Web site, saying that some mortgage lenders may try to tell you that only they are approved to VA refinance your loan.

Not only is that totally false, even mortgage lenders not approved to do VA loans can fund IRRRLs. Do yourself a favor and get several mortgage quotes and make your best deal.

What Are Today’s VA Mortgage Rates?

Current IRRRL rates have changed very little in recent weeks. If they are lower than the rate you’re currently paying, contact some lenders and choose your best deal.

If you have an ARM and you’re worried about its rate increasing, today might be a great time to freeze your rate with a fixed loan. And interest rates for 15-year loans are very favorable, if you want to shorten your repayment period and cut your interest expense.

Click to see your VA loan eligibility (May 26th, 2017)

 

 

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2017 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)