A VA IRRRL (interest rate reduction refinance loan) is a refinanced mortgage that replaces your current VA home loan. A VA IRRRL is also commonly referred to as a VA streamline refinance. This mortgage program is backed by the Department of Veterans Affairs (VA), just like an original VA home loan.
What Does It Mean to Refinance Your Mortgage?
Refinancing a mortgage means to replace a current mortgage with a new one. The new home loan will have a different interest rate, repayment period, and amount.
Typically, this new home loan will offer better terms, particularly lowering the interest rate, thereby reducing the monthly payments. This is often possible because the borrower is in a better financial position to qualify for improved loan terms, the current market interest rates are lower than when they took out the original loan, or when a borrower switches from an adjustable-rate mortgage to a fixed-rate mortgage.
Borrowers can choose to start over on a brand new 30-year fixed mortgage and maximize their monthly savings or they can customize the term by choosing a new term that matches the amount of years left on their current loan. For example, if a borrower is focused on paying off their home as quickly as possible and is seven years in on a 30-year fixed mortgage and has 23 years left, they can choose to streamline their new VA loan to a lower 23-year fixed rate with Griffin Funding.
How Much Can You Borrow with a VA IRRRL?
Like your first VA home loan, your VA IRRRL limit is based on your home loan entitlement (the maximum amount the VA will back if you default on your loan). In fact, a VA IRRRL reuses the entitlement applied to your first home loan.
In most cases, your new VA loan will be the payoff of your existing VA mortgage plus closing costs, prepaid interest, prepaid taxes and insurance, a new impound account and a 0.5% VA Funding (if you are not exempt from the VA funding fee due to a service related injury).
VA IRRRL loans have strict requirements. First and foremost, you must currently have a VA-backed home loan. You must be able to prove that you have previously lived in, or currently live in, the home that the VA loan was originally used for. And, you must use the new VA IRRRL to refinance the original VA loan.
The VA has strict guidelines to ensure that you recoup your closing costs within 36 months or less with the monthly savings of your new VA loan (unless you are moving from an adjustable rate mortgage (ARM) to a fixed rate mortgage).
If you are in a fixed rate loan you must be able to lower the interest rate by at least .5%, unless of course you are in an ARM loan and want to streamline to a fixed rate.
You must have seasoning of at least 210 days from the date that you made your first payment on your current VA loan. In other words, you cannot refinance every few months.
Meeting the VA loan requirements is essential for moving forward with the process.
What if My Original Mortgage Was Not a VA Home Loan?
If your original mortgage was not a VA-backed home loan, you still have other options for refinancing. Fortunately, Griffin Funding has a diverse range of mortgage products, with suitable refinancing options for borrowers in most financial situations.
VA Streamline Refinance Pros & Cons
A VA IRRRL might not be the right solution for every borrower. To determine whether it’s the right choice for you, you first need to consider the VA streamline refinance pros and cons.
Pros of a VA Streamline Refinance
There are several advantages of a VA streamline refinance that make it an attractive option for many borrowers, such as:
- Reduced monthly mortgage payments
- More stable payments by switching to a fixed-rate mortgage (if you previously had an adjustable-rate mortgage)
- Streamlined application and qualification process
- No income verification
- No required appraisal (in most cases)
- No pest inspection
- No need to obtain another Certificate of Eligibility
- No out-of-pocket costs
If you’re a borrower who needs to reduce the cost of your home loan now and plans on staying in the residence for many years, a VA streamline refinance will likely be a good option for refinancing your home.
Cons of a VA Streamline Refinance
Some of the advantages of a VA streamline refinance also have their downfalls, including the fact that you don’t have to pay fees up front. While you save yourself from coming up with the cash right away, you will have to pay it back, with interest. This is because these fees are often rolled up into the loan balance and accrue interest over time. This may be a major disadvantage if it’s likely that you’ll relocate in the near future. If you are staying in the home for longer than 36 months you’ll be able to recoup the fees.
Additionally, you cannot receive cash back with a streamline refinance. However, if you need to extract cash from your home’s equity, we also offer VA cash-out refinance loans which may be better suited to your needs. Keep in mind that to refinance with a VA cash-out loan, your original mortgage does not have to be a VA home loan.
Is a VA IRRRL Worth It?
Whether a VA IRRRL is worth it depends on your personal circumstances. However, in many cases it can make mortgage payments less of a burden, an indisputable advantage for many homeowners. Typically, VA IRRRLs are most beneficial to military personnel or veterans and their families who plan on making this residence their permanent (or at least long-term) home.
If you are unsure whether a VA IRRRL is the right option for refinancing your home loan, speaking with one of our knowledgeable VA loan specialists can help you evaluate your circumstances and move forward in the right direction.
How to Apply for a VA IRRRL
For most borrowers, refinancing from a VA home loan to a VA IRRRL is fairly simple. As we mentioned, since you have previously completed the application and qualification process for your original VA loan, many of those steps are not repeated. Usually, this streamlined process is generally completed as follows:
VA IRRRL Application Process
- Proof that you currently have a VA loan
- Verification that you currently live or have previously lived at the residence
- Confirmation with the Department of Veterans Affairs regarding the original VA home loan
- Review of on-time payment history for the past year through new credit check
- Proof of assets (only if you are planning to pay cash for closing fees)
At Griffin Funding, we always strive to complete the loan qualification process within 30 days, and often, with VA IRRRLs, we can complete the process much faster.