The Veteran’s Administration mortgage or VA mortgage for short is a great loan for those currently serving in the military or those who have separated and are now considered Veterans.  With the VA mortgage, home buyers can get a great mortgage to buy a home or to refinance a mortgage on their existing home.  For home buyers benefits include zero down payment options, no mortgage insurance premiums, less strict credit score requirements and more. For those who have an existing VA mortgage there is a great program that allows for a quicker and easier refinancing of the mortgage which is known as the Interest Rate Reduction Refinance Loan or IRRRL for short.  This article talks about the VA mortgage IRRRL refinance option including who can use it, how it works and the timelines involved.

Who Qualifies

The VA IRRRL mortgage refinance program (also known as the streamline refinance program for VA loans) is available to homeowners who already have an existing VA mortgage.  Conventional, USDA or FHA mortgages cannot be refinanced using the IRRRL program.  The IRRRL is only available to homeowners who currently live in the home.  If you have moved and are currently using the home as a rental it is not eligible for the IRRRL.

The borrower for the VA IRRRL must be current on their loan payments for the last 210 days.  If any payments were made late then the borrower won’t be able to use the IRRRL program and instead must go through the regular refinance process.

Reasons to Use the IRRRL

The VA will not require an appraisal, nor will they require income verification with the IRRRL.  Some lenders may have their own appraisal and income verification requirements.  The VA IRRRL can not only be done faster than a traditional mortgage refinance it can also cost less overall compared to the traditional mortgage refinance.

Reduced Funding Fee

While the VA mortgage does not have mortgage insurance there is a funding fee that is paid up front or can be financed into the loan.  The funding fee helps reduce the cost of the overall VA mortgage program.  The IRRRL funding fee is a flat 0.5% of the new loan amount.  For those who have received a disability rating they are eligible for waiver of the funding fee.  There are also some other categories where waiver of the funding fee may be possible and the Veteran or Servicemember should ask their lender or consult the VA website.

No Cash Out

There is no cash out provision with the VA IRRRL.  A Veteran seeking to get cash out with a mortgage refinance cannot use the IRRRL and instead must go with a traditional refinance which can involve full income verification, full appraisal and other requirements to be met.

Net Tangible Benefit

For the VA IRRRL there must be a net tangible benefit to the borrower.  That means the borrower is getting a financial benefit out of the refinance. That usually means a lower mortgage interest rate.  In the case of refinancing a fixed rate mortgage to another fixed rate mortgage the interest rate reduction must be at least 0.50 percent or lower than the existing mortgage rate.  Any rate reduction of less than 0.50 percent is not considered a benefit and would not be allowed under the IRRRL program.

In the case of refinancing a fixed rate loan to an adjustable-rate mortgage (ARM) the new rate must be at least 2% lower than the existing rate.  Refinancing from an ARM to a fixed rate mortgage does not have any minimum interest rate change requirements as the VA assumes a fixed rate mortgage to be less risky compared to a loan where the rate adjusts over time based on market rates.

Final Thoughts

Refinancing a mortgage to reduce the interest rate can result in some great savings over the life of the loan.  With the IRRRL VA Mortgage Refinance program Active-Duty Servicemembers and Veterans have a great option to refinance their mortgage with relative ease and lower costs as compared to a traditional mortgage refinance.

Ready to apply for the VA IRRRL loan to start saving money today for your Ohio home?  Click here to head over to the application.