The VA IRRRL Refinance allows you to refinance your current VA loan by only verifying your mortgage payment history. Willing lenders can fund your loan based on your original qualifying factors and the fact that you paid your mortgage on time for the last twelve months.
The VA has very few restrictions on this loan with the exception that there must be a net tangible benefit for you to refinance. You must either save money or reduce the risk of your loan. One other restriction the VA has is in regards to the loan term. While the restrictions aren’t too prohibitive, they can determine just how long you can borrow money.
The Maximum Loan Term
The VA allows veterans to refinance into either the same length term, a shorter term, or a longer term. The only restrictions that apply to the loan term are if you plan to go longer. The VA only allows you to add up to 10 years onto the loan, but you cannot exceed 30 years and 32 days.
The only loan terms this really affects are the terms less than 30 years. For example, if you had a 15-year term originally, when you refinance with the VA IRRRL program, you can only take out a 25-year or shorter term. The 30-year term isn’t an option.
If you had a 25-year term originally, you would only be eligible for a 30-year term or less since there aren’t terms greater than 30 years.
The VA puts this rule into place to help you make the most of your investment in your home. If you keep refinancing and extending your loan’s term, you’ll never get ahead of your investment. In other words, you’ll never have equity in the home and won’t make any money on what should be one of the largest investments you make.
Qualifying for the VA IRRRL
Qualifying for the VA IRRRL is easy. Even if you want to extend your loan term as much as 10 years, the lender isn’t required to see how it affects your debt ratio. If you do extend the term, it will only help your monthly debt ratio because the payment should be lower.
You should know though that many lenders require more verification than just your mortgage payment history. This is especially true if you use a different lender. You are not required to use the same VA lender that you used for your original VA loan. Any VA-approved lender that approves you for the VA refinance is a choice for you. If you do use a different lender, they may want to pull your credit or verify your employment just to make sure that you are a good risk.
Choosing the Right Loan Term for You
Before you choose a loan term, consider the implications of it. Do you want to extend your loan’s term? Think of the long-term consequences. You will have to make payments longer than you originally planned. Will this affect your retirement plans? Will you have enough money if you are on a fixed income?
If you opt for a shorter term, make sure that you can afford the higher payment. With less time to pay the loan off, you have to pay more towards the principal. Make sure it’s a payment you are comfortable with now and in the event that something happened to your income.
The VA allows you to play around with your loan term on the VA IRRRL. You can either increase it or decrease it depending on your needs. Explore all of your options and obtain quotes from several lenders to determine which option is the best for you.