Veterans with a current VA loan can refinance their loan with a streamlined program called the VA IRRRL. The Interest Rate Reduction Refinance Loan gives veterans the chance to secure a lower interest rate or less risky loan program. All you have to do is verify your timely mortgage payments and have a benefit for the program. Many veterans assume they must use their current lender for the program since they don’t have to verify any new information.
Luckily, you can use any lender that you want to use. You are free to use your current lender, but you can also shop around.
Should You Use Your Current Lender?
There could be some benefits to using your current lender. Some lenders want to keep their borrowers, so they provide more lucrative terms than you could find from other lenders. You also have the comfort of using the same lender that you are used to using. When you refinance you won’t have any learning curve as far as dealing with the new loan servicer.
We do recommend that you shop around, though. This could include talking with your current lender to see what they have to offer you. Other lenders may have better deals to offer you, though.
The Benefits of Shopping Around for a VA Lender
You have the option to shop around with any VA lender. You are not restricted to the lender that funded your original loan. You may have to do a little more work if you do apply with different lenders because you will have to prove your timely mortgage payments. Everything else would remain the same though.
The benefits you may realize by shopping around include:
- You may find better interest rates
- You may find lenders that charge lower closing costs
- You may find lenders that have different programs to offer
You won’t know which loan suits you the most until you look at the full cost of the loan. Many borrowers are quick to jump on the loan that has the lowest interest rate. We are trained to think that low interest rates mean a better loan. In reality, it comes down to the full cost of the loan. A better measure of which loan is right for you is to look at the APR. This gives you an idea of the cost of the loan over its entire life.
Qualifying for a VA IRRRL
Another factor to consider when deciding which VA lender to use is the overlays the lender requires. Here’s how it works:
The VA requires you to have on-time mortgage payments for the last 12 months. They do allow you to have one late payment during that time; however, they cannot be within the last 3 months. The VA also requires that the lender verify that there is a benefit for the refinance. In other words, the lender must confirm that it makes sense for you to pay the money to refinance your loan.
Some lenders also add more restrictions onto the loan, though. For example, some lenders are not comfortable not checking your credit score before giving you a loan. They want to know that you are a god credit risk, so they pull your credit. Other lenders may go as far as running an automatic valuation on your loan to make sure you are not upside down on your loan. Yet other lenders may verify your employment or even your income if they feel it’s necessary.
VA lenders have the option to make their requirements as strict as they want. This is why it sometimes may pay off to use your current VA lender. They often won’t add additional requirements since they already hold your loan. If they give you a new loan, it has to have a benefit, so the lender might be put in a better position. When you shop around with different lenders, though, they are putting themselves at risk by funding a new loan for you, which may make them be more cautious.
Whether it makes sense for you to use your current VA lender or finding a new lender is a personal decision. You can determine what’s right for you by comparing all options that are available to you. Compare the total cost of the loan and the savings that you will obtain to determine what is right for you.