The VA IRRRL mortgage is known for its very few requirements, but the requirements it does have must be adhered to in order to obtain an approval. One of the largest restrictions on this loan program is the seasoning requirements. These requirements pertain to the length of time you must have held your original VA loan in order to get approved. In the case of the VA Interest Rate Reduction Refinance Loan, you must have held your original VA loan for a minimum of 6 months from the closing date to the date of the application for the IRRRL.
In order to take the seasoning requirements one step further, it is not enough to simply say that you have had a VA loan for the last six months and now you want to refinance. The VA requires a few more things in order to ensure that the refinance is in the best interest of everyone involved. The largest requirement is that of the last six payments that were made on your original VA loan, that a maximum of one payment was made late. That late payment cannot be any more than 30 days late, either. If there is more than one late payment or that payment is more than 30-days late, you would not be eligible for the IRRRL program until you have at least 6 payments consecutively made on time.
In addition to the seasoning requirements, the lender and the VA will require the following:
- The loan amount may not exceed the existing principal on the current VA loan plus any allowed closing costs and the funding fee
- No cash out is allowed
- Up to $6,000 in energy efficient changes can be included in the loan amount upon approval by the lender
How do you Decide if the IRRRL is Right?
Determining whether or not you should refinance your current VA loan after just six months of obtaining it is a personal decision. However, the easiest way to determine if it is right for you to is to determine the length of time it will take you to recoup the costs of the refinance. Every refinance, including the VA IRRRL requires closing costs as it costs the lender and the title company money in order to process your loan. The costs vary from lender to lender which is why it is beneficial to shop around with different VA approved lenders to find the most affordable option.
Once you find the option that is the most beneficial for you, determine how many months it will take you to recoup those costs based on the savings you will make by refinancing. For example, if your new mortgage payment will be $200 less than the original payment, you will save $2,400 per year. You can then compare that amount of money with the amount of your closing costs to see how many months or years it will take you to start saving on your mortgage payments once the closing costs are recouped. Every loan has different terms, interest rates, and amounts, so you will have to determine your own length of time that it will take to recoup the costs to determine the benefits of refinancing.
If you have had your VA loan for at least 6 months, you might be eligible to take advantage of the VA IRRRL program. If your interest rate is higher than the rates offered today and you meet the basic requirements of the loan program, such as no late housing payments and you still hold your VA entitlement, you can reduce your interest rate and save money today!