How Many Payments Must I Make on my Loan Before I can do a Streamline?
This is another question whose answer varies from lender to lender. As far as the VA is concerned, there is no rule or requirement on how many payments you have to make (generally called a “seasoning” requirement) on a VA loan before you can refinance with an IRRRL. However, the VA does have other requirements for IRRRLs that can affect how frequently they can be done. The VA requires that an IRRRL results in “substantial net benefit” to the borrower. Therefore, unless interest rates dramatically drop immediately after you close on your loan, or something else happens to change your situation, it may be difficult to make a case for substantial net benefit only a short time after you’ve closed your loan.
Depending on what lender you go through, they may tell you there is a penalty for refinancing before you’ve met a seasoning requirement of at least 6 payments (6 months) on your existing loan. They may even tell you (or imply) that this requirement comes from the VA. This is simply not true. If a lender tells you this, they are most likely trying to protect their commission from the loan or the revenue from it. In some cases, if a loan is refinanced in less than 6 months from the date of closing, the loan officer or bank may be required to return their commissions or revenue from the loan. This gives the lenders a perverse incentive to prevent you from utilizing your VA loan benefits as fully as possible. If your lender insists that there is a penalty for refinancing before the seasoning requirement has been met, you will be better off finding a different lender for your future needs.
Legally, a penalty for refinancing before the seasoning requirement has been reached is not included in the list of acceptable fees and charges the VA allows lenders to charge as part of closing costs. Also, mention of a seasoning requirement is notably absent from the VA Lender’s Handbook, which rules out the possibility that the requirement comes from the VA. The most important takeaway of this is this: don’t let a greedy loan officer or bank keep you from your VA loan benefits. If you can get substantial net benefit from an IRRRL only a couple months after closing your loan, then go for it, and use Low VA Rates to help you. We do not try to force any sort of ‘penalty’ or punishment for you wanting to use your VA benefits early and often.
As mentioned above, there has to be a substantial net benefit for the borrower in order for an IRRRL to be approved. Since refinancing with an IRRRL costs thousands of dollars in closing costs (though they can be rolled into the loan), there has to be enough benefit to doing an IRRRL to counter those costs. Chances are, you’ll be limited by practical restraints to a refinance every 2-3 years tops. There are exceptions to every rule, and there will certainly be some borrowers who have good reason to refinance more frequently than that, but generally speaking, there won’t be enough benefit with so little time between closings.
What is considered substantial net benefit? Well, a lower interest rate, for one. A lower interest rate generally qualifies as sufficient benefit, and a lower monthly payment or a shorter loan term can qualify. Refinancing from an ARM to a fixed-rate usually qualifies as sufficient benefit, as well. If you’re not sure whether you will get sufficient net benefit from an IRRRL, give us a call or chat us up here on the website and we’ll let you know. If you’re looking for more information on IRRRLs, check out the rest of Frequently Asked Questions or search our blog for any articles containing the word “IRRRL”. We’ve worked hard to accrue an impressive amount of information on VA loans in general and IRRRLs specifically to help answer any question you might have about them. As always, any questions you have you are welcome to bring up to us over the phone or using our website. Don’t be afraid to reach out – we are passionate about helping you get as much benefit as possible out of your VA loans.