Most recently, the Veterans Affairs with Ginnie Mae formed a joint task force to keep an eye on VA loans, particularly its streamline refinance program or the IRRRL. Veteran borrowers have complained of predatory lending, churning and other aggressive lender practices that lead to repeated but unfavorable refinancing outcomes.
What exactly is the VA streamline refinance loan? What should you be aware of the program? Learn the 5 most important rules on the VA IRRRL to keep you out of unscrupulous lenders’ path and put you on the informed decision track instead.
Protect yourself at all times. Consult with a VA loan expert today.
Top 5 Rules of VA Streamline Refinance
Streamline refinancing allows you to lower your rate and thus result in lowered monthly payments with lesser paperwork and reduced processing time.
The VA offers this refinance option for its existing borrowers through the Interest Rate Reduction Refinance Loan or IRRRL.
It’s easy to see why the IRRRL is a popular program:
- No appraisal
- No credit underwriting package
- No money out of pocket because closing costs can be financed
These features lead us to the five most important things you should know about VA streamline refinance loans.
1. No lender is required to give you an IRRRL.
The VA said this explicitly on its web site. Lenders can process IRRRL applications and it’s YOU who will have to approach them. You are encouraged to shop for loans because terms vary among lenders.
When a lender contacts you and urges you to do a streamline refinance out of the blue, stand your ground and think twice about the offer.
2. IRRRL does not allow cash-out.
The VA does not permit any cash proceeds out of the transaction. If you need cash, you can apply for a cash-out loan, which is a separate refinance program offered by the VA. The cash-out refi program is closely similar to the VA purchase loans but non-VA loans are welcome.
Any offer for you to get cash out of your streamline refinance loan is a red flag. It’s a big no-no.
3. You must BENEFIT from the streamline refinance.
The VA requires that the refinance must be beneficial to the veteran. This can be shown in the following ways:
A decreased rate except when the loan being refinanced is an adjustable-rate mortgage to a fixed-rate mortgage.
A decreased monthly payment (principal + interest) except when the loan being refinanced is an ARM, the term is shortened (thus higher payments), and energy efficiency improvements are added to the loan.
Supposing the new payment increased by 20%, the lender must look into whether the borrower can afford the increased payment.
4. Take note of what can be added into the loan’s closing costs.
The VA is clear that the closing costs of the IRRRL may include the VA funding fee and any fees and charges it allows, including the lender’s flat charge.
While the loan does not generally require an appraisal or credit check, the lender might need to do so based on its lending standards. In that case, fees on appraisal and credit check may be passed to the borrower and included in the loan.
5. The loan being refinanced must be current.
The VA requires that the VA loan being refinanced must be current. VA-approved lenders generally asked 6 to 12 monthly payments on the loan before it can be refinanced.
This leads to the timely question of how long must you wait to refinance your VA loan under the IRRRL. Some lenders have done quick refinances of loans or skirted rules on the six-month seasoning period.
Against this backdrop, the VA-Ginnie Mae task force is looking into stronger seasoning requirements to avoid quick refinancing of VA loans.
It should be veterans who take advantage of the benefits of the streamline refinance program and not the ones being taken advantage of predatory lenders. Speak with reputable lenders only.