The VA IRRRL program is one of the most popular refinance options for veteran homeowners. Why? because it is super easy, super fast, and super helpful. Here at Low VA Rates we are IRRRL experts. We consider ourselves to be the leaders in VA streamline loans.
What Is the VA IRRRL Program?
Simply put, the VA IRRRL program is a VA benefit that lets veteran homeowners refinance to lower their existing interest rate. The IRRRL program is also know as the VA streamline refinance, and it is a quick and easy process. The biggest reason why anyone uses the VA IRRRL is because of the lower interest rates it offers. In almost every case, your monthly payments will be lowered with the VA IRRRL program. IRRRL stands for Interest Rate Reduction Refinance Loan. When the interest rate is lowered, your monthly payments almost always go down, too, and you will end up paying less interest over the entire life of the loan than if you didn’t refinance with the IRRRL, which will potentially save you thousands of dollars in the long run.
One scenario where your monthly payments would not decrease is if you were to lower the term of your loan, which is also possible with the IRRRL. So, instead of paying off your loan in 30 years, you would pay off your loan in maybe 20 or 15 years instead, thereby increasing your payments but being free of your loan much sooner. Ultimately, lowering your loan life would save you more money in the long term than just about anything else.
Another feature of the VA IRRRL is that you can lock in a fixed rate if you had an adjustable rate before. Some people find if they had an ARM before that the interest rate fluctuations were too variable for them. They want to have the stability of a fixed rate—always knowing how much they have to make in monthly payments each year. But these aren’t the only benefits of the IRRRL. It’s also possible to get extra funds (up to $6,000) to do energy efficiency improvements on your home. This could also help you save money by lowering utility bills.
Who Is Eligible for the Interest Rate Reduction Refinance Program?
Not everyone is qualified to refinance with an IRRRL. Even if you’ve served in the military for several years, there could still be factors that keep from qualifying for an IRRRL. For example, you must be refinancing from a current VA home loan. If you currently have a conventional loan, you cannot use the IRRRL yet. You can still refinance into a VA loan, but it must be done with a refinance option other than the IRRRL (such as the cash-out loan). Here are a few other requirements when refinancing through the IRRRL program:
- VA loan eligibility (obtain a COE)
- Current on VA loan payments
- Lower your rate or switching to fixed rate from an ARM
- Lower payment or lower term
In all honesty, there are many advantages to the VA IRRRL and very few disadvantages. I’m going to list just a few advantages to the VA IRRRL loan here. It’s important to be aware of exactly what’s included in the package when you apply for an IRRRL, so make sure you connect often with your lender to know what’s required of you at every step.
- No income verification and no appraisals: the streamline program, or VA to VA loan, takes all of the information from your original home loan and essentially plugs it into the new loan. That means a lot less paperwork for you and your lender to fill out. It also means you do not need to provide income verification again and you do not need to go through the appraisal process all over again.
- No monthly interest premiums: Since the Department of Veterans Affairs (VA) backs every VA loan, no PMI is required. Instead, most borrowers are required to pay a funding fee, which can be waived in cases of service-related disability.
- Lower interest rate: The IRRRL is designed to get you lower interest rates. That’s why the full name is the VA Interest Rate Reduction Refinance Loan.
- Energy Efficiency Mortgage (EEM): If you’d like to make energy efficient upgrades to your home (such as adding solar panels), you can finance these through adding the EEM to your IRRRL. This will give you up to $6,000 in additional cash.
No matter where you go, every loan has its disadvantages or areas to be aware of. With the IRRRL refinance, there are two potential disadvantages that you should ask your lender about when doing this refinance.
- Overlays: These are additional rules that lenders put in place on top of VA requirements. For example, the VA doesn’t have any standing rule about a borrower’s credit score. However, VA IRRRL lenders are allowed to require any number of credit score in order for a borrower to do business with them. These overlays protect the lender from acquiring too much risk while maintaining equal requirements for all borrowers. The problem here for you as the borrower is that you may be required to jump through all sorts of hoops in order to be approved for a loan with certain lenders. And it can be quite the chore to figure out which rules are in place for all lenders (set by VA) and which are just added for a specific lender’s benefit. At Low VA Rates, we do not have any overlays. It’s as simple as that.
- Increasing funding fee: the more times you use your VA benefits, the more your funding fee will increase. That being said, there are many ways around this disadvantage. Most borrowers can essentially “reset” their VA benefits, and borrowers with service-related disabilities usually qualify for a reduced fee or are exempt altogether.