If you have a VA loan now, you may be eligible to refinance it with the VA IRRRL program. Otherwise known as the VA Interest Rate Reduction Refinance Loan, this program allows veterans to refinance for a lower interest rate, lower payment, or better term.
The program requires very little verification and has flexible guidelines. Should you consider the VA IRRRL program? Keep reading to learn its key features to help you decide.
You Can Refinance Only Your Outstanding Balance
The VA IRRRL program is not a cash-out loan. You may only refinance the outstanding principal balance of your mortgage plus any allowed closing costs/funding fee. Under no uncertain circumstances can you take cash out of the home with this program. It’s strictly meant to help you reduce your payment or lower your interest rate.
If you are looking for a cash-out refinance, you will have to use the VA cash-out refinance. This program requires full verification of your ability to afford the loan, but it allows you to borrow up to 100% of the home’s value.
You Don’t Need to Verify Your Income
This is probably one of our favorite features of this loan. The VA allows lenders to use the original qualifying factors used for your original VA loan. Since you obviously qualified for the VA loan then, you’ll qualify now too.
Why we like it so much, though, is because you can even change jobs and still get the VA IRRRL approval that you want. Some lenders may still require a quick verbal verification of employment just to verify that you are working, though, so you should ask a lender what stipulations they have for the loan so that you know ahead of time. There are plenty of lenders that don’t add any requirements onto what the VA requires, which means no verification of employment or income.
You Don’t Need an Appraisal
This is another favorite feature of ours. You don’t have to pay for a new appraisal. Not only does this save you money, but it saves you from the heartbreak of a loan denial. This is especially helpful for those whose home value dropped over the years. Even though the housing crisis is basically over, many homes are still trying to make up for the value they lost.
A lower value could mean that you are upside down on your loan. In other words, you owe more than the home is worth. With the VA IRRRL program, it doesn’t matter. You can still refinance your loan, which is an amazing benefit. You are able to lower your payment even though the value of your home is down. If you are able to lower your interest rate, you can pay more money towards the principal, helping you to get out from underwater faster.
You Must Have a Timely Payment History
The VA IRRRL program requires very little to get approved. But one factor that you must have without exception is a timely mortgage payment history. The VA feels that if you were able to pay the higher mortgage payment on time each month for the last 12 months that paying a lower mortgage payment on time will be even easier.
Since this is the main qualifying factor of the loan, the VA does enforce it. In some cases, they will grant an exception for one 30-day late payment. You must have brought the account current before you apply for the VA IRRRL though.
You Must Have a Net Tangible Benefit
The only other factor that the VA enforces is the need for a net tangible benefit. This means that there is a good reason for you to refinance. If you don’t benefit from the refinance, the VA doesn’t want you to do it.
Refinancing your loan costs money. It can cost as much as a few thousand dollars as it’s usually between 3% and 5% of your loan amount. If you don’t benefit with a lower payment, better term, or lower interest rate, then there is no reason to spend the money on the refinance.
The VA doesn’t have a specific threshold you must meet to prove the benefit. You just have to prove that you benefit in some way.
The VA IRRRL program is a great way for veterans to refinance their loan. If you know you can save a significant amount of interest on the loan or you can shorten the loan’s term – go for it. If you won’t save much, though, it may make sense to save the few thousand dollars in closing costs and put it towards your home’s principal instead.