What You Need to Know Before Refinancing Your VA Loan
Posted On November 11, 2020
Financing your home with a VA Loan is one of the most affordable pathways to homeownership. Created by the US Department of Veterans Affairs (VA), the VA Loan is available to all active duty military, veterans, reserve members, National Guard members, and surviving military spouses. With no down payment, no mortgage insurance and oftentimes a lower than average interest rate, the VA Loan makes homeownership much more financially feasible for those who have served. While many people are aware of the benefits of a VA Loan, fewer people know of the great opportunities of refinancing with the Interest Rate Reduction Refinance Loan (IRRRL).
The IRRRL – or the streamline refinance loan – is a type of refinance loan specifically designed for homeowners who have purchased their house with a VA Loan. If you’re a current VA Loan homeowner and are looking for a more affordable mortgage, a lower mortgage interest rate, or a more consistent monthly payment, an IRRRL is a great option. Like traditional loan refinances, an IRRRL helps you to lower your interest rate to the market value – which is currently extremely low. Lowering your interest rate can reduce your monthly mortgage payments. Plus, if you choose to switch to a fixed-rate mortgage, your interest rate won’t change – which will allow you to make lower monthly payments through the life of your loan.
The IRRRL is one of the easiest loans to qualify for and has many advantages over a traditional mortgage. Unlike a traditional mortgage refinance, an IRRRL has no appraisal requirement or fee, no credit underwriting, and no out-of-pocket closing costs. However, the IRRRL is not fee-free. Though no out-of-pocket closing costs are required, they will typically be rolled into your monthly payments or result in a higher APR. An additional cost of refinancing with a VA Loan is the VA funding fee.
The VA funding fee is a one-time fee that helps lower the cost of the loan for U.S. taxpayers. Often, the fee can range anywhere from 0.5%-3.3% of your loan amount. If you decide to include the fee in your payments, it will become part of your loan total, requiring you to pay interest on it. Exceptions to the funding fee include veterans with service-related disabilities, widows of veterans with service-related deaths, and active duty service members who have been awarded the Purple Heart.
To be eligible for an IRRRL, you must have purchased your home with a VA Loan, have had the VA Loan for at least 210 days, and prove that you occupied your home at some point in your initial mortgage. This means that homes financed with a VA Loan that are converted into rental properties are eligible – which is accommodating for the military lifestyle. If you choose to refinance your home with a VA Loan, you must provide the Certificate of Eligibility (COE) from the original VA loan (if you choose a cash-out refinance), and if you have a second mortgage on the home, that holder must agree to make the IRRRL the primary mortgage.
Once you’re ready to get started on your IRRRL, let us know! You have to use a VA approved lender when you refinance your VA Loan – and we are proudly VA approved. After all of the service you have done for us, it would be our honor to serve you. Thank you to all of our Veterans who have served our country.