It is no doubt that the VA’s Interest Rate Reduction Refinance Loan (IRRRL) Program is one of the best mortgage refinancing options out there – low interest rates, flexible guidelines, low closing costs. It’s pro-borrower and intent in its aim to aid the meritorious heroes of our time. But you might ask: “Could such a perfect program exist, or are there any disadvantages in using IRRRL to refinance a home?“
There are. In fact, every loan program has. And it’s worth knowing them. But it’s also worth meriting the exemplary benefits that this program has to offer. Let’s take a closer look at the pros and cons of the IRRRL program.
No income documentation, credit score limit, or appraisal requirement
All the numeric hurdles that typically pose difficulties to the regular borrower are effaced. You do not need to prove that you have a stable income or that your current debts do not go over the 38 percent limit of your gross monthly income. Nor do you have to stress over building better credit because you’ve missed some payments on your loans in the past two months. All that is required from the veteran borrower is a good payment history of his/her home and they are almost immediately given the green light to proceed.
You can wrap closing costs on the loan
VA home loans offer 100 percent financing. And when it comes to refinance, you get the same benefit as well. Even if the value of your home has decreased, you can still include the cost of closing in your loan because an appraisal is not necessary to get the loan approved.
Various lender options
You are not restricted to refinance from the same lender where you have applied your first mortgage from. You can shop around from various lending sources that offer the IRRRL program. This gives you more freedom to choose the best interest rates that save you more money to refinance.
Closing costs are rolled into interest, not the principal
If you decide not to pay the cost of closing, the cost is then wrapped into the loan. However, it is not added to the principal, but charged on the interest. This means getting a slightly higher interest rate than if you decide to pay the fee upfront.
Deciding to have the closing cost wrapped into the loan, however, could be a positive thing if you do not plan to stay long in the home. That is because it would take some time to make up for this cost.
Cashing out not feasible
The overall aim of IRRRL is to make homeownership more affordable for veterans and their families, not to serve as an emergency funding source. In this case, it is impossible to take out money from your equity. If that is your aim in refinancing, you can ask your lender about another VA loan program for that.
It is important to balance the pros and cons of an option in any financial decision – even the ones that seem perfect. Weighing both will give you an objective perspective as to whether refinancing is good for you. Timing is crucial too. Work on what is viable in your current situation and find the right people to make a successful refinancing happen.