The VA’s Streamline Refinance program, also known as a “VA to VA” loan or Interest Rate Reduction Refinancing Loan (IRRRL), allows you to lower the interest rate on your mortgage with few or no out-of-pocket costs. This is only available to you if you have already used your eligibility for a VA loan on the property you intend to refinance, and is probably the best option for you if you just want to refinance your existing loan at a lower interest rate.
There are advantages to having an IRRRL. As was mentioned before, you can refinance your existing VA loan to a lower interest rate. This loan can be done with “no out of pocket money” by including all costs in the new loan. The VA does not require an appraisal, income or employment verifications, or a credit report or termite report, as long as the current mortgage has been paid as agreed for the last 12 months and is up to date at the time of refinancing. You are also allowed to include up to $6,000 in your refinancing loan for the purpose of energy efficient home improvements.
Except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM), which is an interest rate that periodically adjusts based on an index from the lender, to a fixed rate, it must result in a lower interest rate, or you will not qualify. When refinancing from an existing VA ARM loan to a fixed rate, the interest rate may increase.
Below are some tips and facts that you should keep in mind when trying to decide whether this type of refinance is right for you:
· Although no appraisal or credit underwriting package is required by VA, your lender may require an appraisal and credit report anyway.
· A certificate of eligibility is not required from the VA. Your lender can use the VA’s e-mail confirmation procedure for interest rate reduction refinance in lieu of a certificate of eligibility.
· Although a Streamline loan may be done with “no money out of pocket” by including all costs in the new loan, you could also make the new loan at an interest rate high enough to enable the lender to pay the costs. But remember, the interest rate on the new loan must be lower the rate on the old loan unless you refinance an ARM to a fixed rate mortgage.
· No lender is required to make you a IRRRL, but any lender of your choice may process your application for an IRRRL.
· While it may be the best place to start shopping for an IRRRL, you do not have to go to the lender you make your payments to now or to the lender from whom you originally obtained your VA loan. In fact, Veterans are strongly urged to contact several lenders. There may be big differences in the terms offered by the various lenders you contact.
· Some lenders may try to contact you and fool you into thinking that they are the only lender with authority to make IRRRLs. Remember, any lender may make you an IRRRL.
· An IRRRL can be done only if you have already used your eligibility for a VA loan on the property you intend to refinance. It must be a VA to VA refinance, and it will reuse the entitlement you originally used. You may have used your entitlement by obtaining a VA loan when you bought your house, or by substituting your eligibility for that of the seller, if you assumed the loan.
· The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL, you need only certify that you previously occupied it.
· The loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including funding fee and up to 2 discount points. As previously mentioned, you may also add up to $6,000 of energy efficiency improvements into the loan.
Some lenders offer IRRRLs as an opportunity to reduce the term of your loan from 30 years to 15 years. While this can save you a lot of money in interest over the life of the loan, if the reduction in the interest rate is not at least one percent (two percent is better) and lots of new loan costs are rolled into the new loan, you may see a very large increase in your monthly payment. So research which IRRRL, or Streamline refinance, is better for you!