VA Streamline Refinance
The VA “streamline” loan (officially called the Interest Rate Reduction Refinancing Loan, or IRRRL) is the simplest and most popular VA loan.
The VA loan program, like other loan programs, offers a streamline refinance option for their borrowers. The option the VA offers comes with a great deal of advantages beyond that of other streamline refinance offerings, and has been tailored to best meet the needs of VA-eligible borrowers all over the country. Learning more about the VA streamline refinance can change your future plans for the better, and open up doors you didn’t realize were there. The VA’s streamline refinance option is called the Interest Rate Reduction Refinance Loan, usually abbreviated as the IRRRL.
Why You Want One:
The IRRRL is usually the best way to refinance your VA loan if you’re looking to get a lower interest rate (hence the name). IRRRLs boast three big advantages over other refinance options:
- Quicker - where a normal refinance or new purchase loan usually takes around 45 days, and as long as 90 days, an IRRRL can be done in as little as 10 days.
- Easier - Most of the paperwork you already did when you bought the home or refinanced into a VA loan can be reused.
- Cheaper - You don’t have to pay for an appraisal, can roll the Funding Fee into the loan amount, and save on underwriting fees.
The IRRRL is an option that is full of benefits for you as the borrower. A lower interest rate is usually a requirement on an IRRRL (unless you’re refinancing from an ARM loan to a fixed-rate), as is an overall lower monthly payment. You don’t have to obtain an updated COE or get the property re-appraised, and you don’t have to spend any money out-of-pocket to get your IRRRL. The VA allows you to roll all of your closing costs, including the VA Funding Fee, into the loan amount, so you can take advantage of a lower interest rate and not have to pay any money upfront.
IRRRLs are so quick for a lot of the same reasons they are so cheap; less underwriting, less homework, less to-do overall. While some lenders are usually required to get prior approval from the VA for each loan they close, nearly every lender can close most IRRRLs without that prior approval. Combined with the removal of the appraisal and updated underwriting information, the ability of lenders to close IRRRLs on their own make the process go a lot faster. As if being quick, easy, and cheap wasn’t enough, the VA wants the IRRRL option to work for as many different people as possible, which is why they’ve added some great options.
One of the most common reasons a borrower would want cash back on a refinance is to improve their home. In light of that, the VA allows a borrower to add an Energy Efficiency Mortgage onto their refinance when using an IRRRL. An EEM allows a borrower to get up to $6,000 to make improvements to their home that will save them money on their monthly utility bill. Getting an EEM will usually add some time to the process of closing on the IRRRL, but if you’re wanting to improve your home, an EEM can be a great way to go. Also, even though the EEM is the only cash-back option the IRRRL provides, the VA does allow you to defer up to 2 months of mortgage payments when you get an IRRRL. This can be really handy if you need to make a one-time expense like a down payment on a car, or if you just want to pay your closing costs upfront and could use a couple months to recuperate.
There’s another thing that makes the IRRRL such a great option - you don’t have to still be occupying the home as your primary residence to refinance it with an IRRRL. The VA has an occupancy requirement on new purchase and cash-out refinance loans; the borrower must certify that they intend to occupy the home as their primary residence. However, when refinancing with an IRRRL, the borrower need only certify that they previously occupied the home as their primary residence. This is one of the little-known benefits of the VA loan program. If this is something you’re interested in learning more about, contact us via phone or our website.
How You Get One
IRRRLs are designed to be simple affairs, and quite frankly the only step that you really need to take is to sit down with your lender and explain you want to apply for an IRRRL. Your lender will walk you through all of the steps required to apply.
Generally, the steps will be as follows:
- Tell your lender you want to get an IRRRL.
- Contact other lenders to see if there are differences in the terms they will offer you.
- Provide your occupancy certification and any other requested documentation to the lender that will offer you the best terms.
- Make it clear whether you will want to get an EEM and decide if you are going to roll closing costs into the loan amount.
- Wait for underwriting and respond with any requested documents.
- Close with the title company.
- Enjoy your lower interest rate!
If you were able to brave the process of purchasing a home and/or refinancing that home with a standard refinance, the process of getting an IRRRL will be simple enough to do in your sleep. If you need more help or guidance - you can get it from us at Low VA Rates.
Things to Consider
The IRRRL is a pretty stellar option - especially when compared to normal refinances and streamline refinances in other loan programs - but that doesn’t mean it’s the Holy Grail of mortgages. There are plenty of scenarios when an IRRRL simply isn’t the best option for you to refinance your home. Here are some examples:
- You want cash out - If you’re wanting to take advantage of the equity you have in your home for anything other than energy-efficiency improvements, then you’ll need to use a normal refinance.
- You want to consolidate debt - Similar to taking cash out, if you want to pay off your high-interest-rate credit card debt with your low-interest-rate mortgage, you’ll only be able to do that through a normal refinance, because an appraisal and additional underwriting is required to get a loan for a larger amount than you currently owe on the home.
- You want to turn a 15-year mortgage into a 30-year - This may be surprising, but when you refinance with an IRRRL the resulting term can only be 10 years longer than the term of the original loan, so a 15-year mortgage could, at most, be turned into a 25-year mortgage.
In all cases, it’s best to get a personal recommendation from a lender on whether an IRRRL is going to be the best step for you. Usually it will be, but a VA-approved lender is going to know if there is something that will prevent you from getting all you’re hoping for out of an IRRRL.