Talking to a VA lender on a refinance, you will hear the term VA IRRRL (pronounced Earl) a lot. A homeowner’s response might be, who is Earl, and how is he going to help my VA loan? IRRRL is not a person, but it is a streamline refinance program for existing VA borrowers. IRRRL stands for interest rate reduction refinancing loan and has several huge benefits for Veterans, including:
Watch Out For VA Lenders Churning Loans
Are VA lenders churning butter? No, churning is when lenders provide a refinance where the benefits are minimal. In addition to minimal benefits, there are high costs. Thus, an increase in the new mortgage balance with minimal benefit. Fortunately, Ginnie Mae and the Department of Veteran Affairs have stepped up to suspend VA lending against several lenders.
As a result of this issue, the new VA refinance requirement is that at least 210 days have passed since the first payment is made on the current VA loan. Although, there is legislation in process to simplify this rule. The reason is lenders have a difficult time knowing when the client actually made the first payment. The recommendation is that 210 days start with the required first payment date per the promissory note of the current loan.
Additionally, VA lenders must perform a net tangible benefit test that ensures the new refinance provides enough benefit to the homeowner in relation to the loan costs.
How Does a VA IRRRL Work?
As a homeowner, it is key to stay on top of your home’s condition and the finances. For Veterans that used a VA loan to purchase the home, they received one of the best home loans available. VA loans allow no money down and offer a low monthly payment compared to other home loans. But when rates drop in comparison to a homeowner’s existing loan rate, it is time to pay attention for potentially additional savings. That’s where a VA IRRRL comes in. Now, this is not a cash out loan or allowed for consolidating other debts. That is a VA cash out refinance. But, it does provide a way for homeowners to improve their current loan.
The steps are pretty simple. First, reach out to an experienced VA loan officer to discuss how current rates compare to your existing mortgage. For best results have the following available:
- Most recent mortgage statement
- Current property tax bill
- Current insurance policy declaration pages (applies to any insurance policies in place including flood insurance)
- Closing disclosure from your last closing
With this information, a loan officer is able to look for potential savings. If it doesn’t make sense now, at least you know. Furthermore, a goal can be set so that if rates hit that mark, the homeowner can pounce on it. Although, if the terms make sense, then proceeding with an application and credit pull is next. Fortunately, the process from here is very streamlined. Income or debt ratio calculations are not necessary. Basically, VA says if you have made your current payment, then you should make the new one. Even better is that there is no appraisal and that customary closing costs may be included in the VA IRRRL.
VA IRRRL Strategies
Life happens. So, that means homeowners often move, may divorce, or their finances change. Put these all together, and chances are that most will experience one of these. As mentioned above, a VA IRRRL could help in each. For instance, even though VA loans are for financing a primary residence, VA may allow for a former primary residence to be refinanced using this product. Plus, it allows a primary residence interest rate. Next, it is possible to remove a divorced spouse or even add a new spouse. Do check with a loan officer on these requirements, though.
So, the deal is if you have a VA loan, stay in touch with your loan officer. It has tremendous perks when you do this! Have questions? Reach out now!