VA Streamline Closing Costs Explained

Depending where you live or the type of loan you’re taking out, you may be able to control how many closing costs you’ll have to deal with, how you’ll deal with them, and when. Find out the best way to minimize those closing costs and keep more money in your pocket – even after closing! 

What Are VA Streamline Closing Costs?VA IRRRL Closing Costs

Closing costs include any fees involved in obtaining and finalizing your streamline loan—basically, how much the whole process costs, from your very first meeting with your lender to the moment you get the keys to your new house.

We’ll take you through some examples of closing costs so you can get a better idea of what to expect. Though this is not a comprehensive list, it covers most of the common fees, many of which may be known by other names.

Prepaid Finance Charges (PFC) vs. Paid Outside Closing (POC)

You may notice in your paperwork that some closing costs are listed under PFC or POC. POC payments are paid prior to closing, like an appraisal fee. PFC charges include any fees or costs having to do with the loan process itself, such as prepaid taxes, prepaid insurance, title searches, or administrative charges.

Discount Points

Discount points serve as fees you can pay to buy-down your mortgage rate. One discount point is equal to 1 percent of the loan amount. Each point used can potentially lower your interest rate by 1/8 to a quarter. For example, if you have a loan of $300,000, each of your discount points would cost $3,000. If your interest rate is 5 percent, and each point used lowers your rate by a quarter amount, then buying two points for $6,000 will lower your interest rate to 4.5%. The cap for discount points is 25, and you can always opt for a zero-point loan.

Origination Fees

Origination fees are pretty self-explanatory; they pay for the administrative process of starting a loan, such as underwriting and processing. This fee cannot be more than 1 percent of the loan.

Credit Report Fees

These fees pay for a credit report, which can cost up to $30.

Appraisal Fees

Typically, your lender will hire an appraiser to evaluate the house and the property surrounding it. The appraisal fee can be around $300.

Included in the appraisal process are hazard and flood zone determinations, as well as environmental endorsements. These will cost money, too. Hazard insurance may or may not be required in your state, but some states (like California) require a hazards disclosure report. This report informs the buyer of any potential environmental hazards near the property they are buying.

Like hazard insurance, environmental endorsements may not be required, but certain states or lenders may want to make sure the location of the property has been declared environmentally safe before proceeding with the loan process.

Flood zone determination is usually performed by a third party. They determine whether your home is located near or in a flood zone and whether or not you’ll need to buy flood insurance.

Title Examination Fees

This fee can cost up to $300 and is charged by a third party, usually an attorney in charge of closing. The attorney inspects the title and makes sure there are no mistakes or oversights, such as breaks in the chain of title or unsatisfied liens of mortgages.

Escrow Fees

Escrow fees are paid to the third party who carried out the closing, such as title companies, attorneys, or escrow companies. Some states don’t require real estate attorneys to be present during closing, but normally some form of third party will oversee the closing and make sure everything is in order.

When you start your escrow account, lenders will require a deposit. Escrow payments can be annual or semiannual, or you can roll them into the loan and pay them in monthly installments.

VA Funding Fee

VA funding fees of 0.5 percent apply to every VA refinance or purchase loan and are intended to help other veterans. The proceeds of this fee go to the Department of Veterans Affairs, and the VA uses this money to compensate for losses on defaulted VA loans. If you are a veteran under VA compensation or if you have disabilities from service, it is possible to be exempt or partially exempt from this funding fee.

VA Streamline Loan and Closing CostsChoosing a VA Streamline


If you’ve crunched the numbers and a VA Streamline seems right for you, then we’re here to help. Our loan officers at Low VA Rates are ready and reliable when it comes to setting you up with a great VA loan at an extremely low rate. We work hard with our veterans to mitigate the pile-up of closing costs and make sure no unforeseen fees obscure the path to homeownership. You’ve worked hard for us, so we promise to work hard for you. Visit
our site to learn more.

The VA Streamline Refinance Loan

The VA streamline refinance is termed officially by the government as the Interest Rate Reduction Refinance Loan (IRRRL), and is sometimes nicknamed the VA-to-VA loan. This loan allows those qualified to refinance their mortgage in order to lower their interest rate. It’s also used to refinance an ARM (adjustable rate mortgage) into a fixed rate mortgage.

 

How Does The VA Streamline Refinance Work?

Once you’re approved, a VA streamline refinance is simple and easy to use. For one thing, a Certificate of Eligibility from the Department of Veterans Affairs is not required for an IRRRL, nor is a down payment. In many cases, appraising and credit underwriting won’t be required either, but this can vary from lender to lender.

While they certainly shorten and simplify the loan process, streamline loans do have their own requirements. These requirements make “net tangible benefit” a priority over simply making the loan originator rich. This means they are structured to improve the situation of homeowners, producing actual, tangible benefits.

Here are some examples of these requirements, or guidelines:

  • To take out a VA streamline loan, you cannot be more than 30 days late on your current mortgage.
  • No cash out is permitted.
  • Many lenders have a minimum credit requirement, so it’s important to check with your lender about these specific requirements. Low VA Rates, however, does not have a set minimum credit score.
  • Obviously, the new monthly payment must be lower than the original monthly payment, and the interest rate should decrease as well.

The IRRRL is done with “no money out-of-pocket,” so the new loan can include all new and original costs, including refinance costs. The loan can take as little as 10 days to close.

Who Qualifies for a VA Streamline?

Those who qualified for a VA loan will be able to refinance that original loan with an IRRRL. This is where the VA-to-VA nickname comes in.

If you have a second mortgage, you are required to make your new VA loan your first mortgage by having your holder subordinate the lien.

Like was mentioned earlier, being current on your mortgage at the time of refinancing is optimal. Delinquency could be a disqualifying factor depending on which VA loan lender you use.

Other Types of VA Refinance: The VA Cash-Out Refinance Loan

Cash-out refinancing is an option if you want to have some extra cash on hand for medical bills, schooling, and other major expenses. But it works differently than a streamline refinance.

Unlike the streamline refinance, the VA cash-out refinance will, if you have a second mortgage, allow you to combine both mortgages. In most cases, the cash-out loan from the VA will match 90 to 100 percent of the value of your home.

The funding fee for streamline refinancing is 0.5 percent while the cash-out fee is a little higher, around 3 percent. And although one of your mortgages may be 30 days delinquent or less with a streamline loan, cash-out does not allow any delinquency at all. Cash-out loans also require that the property be occupied at the time of refinancing while VA streamline loans do not.

The fact of the matter is that we at Low VA Rates offer great mortgage rates. We provide transparent clear-cut refinancing available to our veterans and military service members. Interest rates are at a historic low and our clientele is stronger than ever. While it’s smart to shop around and compare vendors, we hope your shopping ends here with us: our passion for giving back to veterans is reflected in everything we do, from the easy, guided application process to our low APR guarantee. You deserve to work with a lender dedicated to ensuring you and your family get a low, affordable rate. Get started on your refinance with us today.

The VA Funding Fee Demystified and Explained Part 2

Deciphering the VA Lender’s Handbook Chapter 8 Part 6

How the VA Funding Fee worksIn the last article we covered how you and the lender work together to determine whether you are exempt from the funding fee, as well as what to do in the event that you could be exempt but aren’t able to have your exempt status confirmed until after the fact. If you’re looking for information on how the funding fee works and the process you’ll go through in relation to the funding fee, you’ll want to read that article. This article is going to be all about numbers; how much will the funding fee cost, what number is the percentage calculated off of, and how many days the lender has to remit payment of the funding fee to the VA.

 

For all VA loans except for IRRRLs (streamline refinances), a certain percentage calculated from the tables in Chapter 8 of the VA Lender’s Handbook is applied to the loan amount. Some good news for those who are planning to use loan proceeds to pay for the Funding Fee: the percentage is calculated off the loan amount before the cost of the funding fee is added to it (if you think about it for a bit, it becomes clear why). IRRRLs are different; to calculate the funding fee on an IRRRL, the lender completes the VA Form 26-8923. For most loans, however, the lender will be using the tables in Chapter 8, which I have included in this article. Quick note – for joint loans there are some special instructions for calculating the Funding Fee. We went over those in Chapter 7.

 

So, when the lender is calculating the Funding Fee, he or she will look a lot at your Certificate of Eligibility. The first thing they will look for is whether you are eligible for benefits because of service in the regular military or through the Reserve/Guard. For a Reservist/Guard, the COE will be buff-colored rather than green, and will have the following notation, “RESERVES/NATIONAL GUARD – INCREASED FUNDING FEE”. The second thing the lender needs to know is whether this is a first-time use of the veteran’s VA loan benefits or a subsequent use. The entitlement code on the COE tells the lender this. A “5” indicates a subsequent use. Next, the lender needs to apply what kind of loan is being taken out: new purchase, refinance, or streamline refinance. Last, the lender needs to take into account whether the veteran is making a down payment, and how much of one is being made. With that information, the lender can locate the correct percentage using the below tables.

 

For New purchase and Construction loans:

Type of Veteran Downpayment Percentage for First time Use Percentage for Subsequent use
Regular

Military

None

5% or more

10% or more

2.15%

1.50%

1.25%

3.3%

1.50%

1.25%

Reserves/National Guard None

5% or more

10% or more

2.4%

1.75%

1.5%

3.3%

1.75%

1.5%

For Cash-out Refinancing Loans:

Type of Veteran Percentage for First Time Use Percentage for Subsequent Use
Regular Military 2.15% 3.3%
Reserves/National Guard 2.4% 3.3%

Calculation VA Loan RatesAs you can see, making a down payment makes a big difference in the amount of funding fee you are charged, regardless of whether you served in the regular military or the Reserve/Guard. Considering that making a down payment also lowers your principal and saves you thousands of dollars in interest over the life of the loan, making a down payment is the best financial decision if you are able to afford it. Even if you don’t make a down payment, the Funding Fee is very low compared to the mortgage insurance premiums you would be paying through any other loan program for paying little or no down payment.

 

Lenders must get the Funding Fee payment to the VA within 15 calendar days of loan closing. If you are paying the funding fee out-of-pocket, you’ll be asked for a cashier’s check at the time of closing. If you are paying the funding fee out of loan proceeds, your lender will explain how it will work. In the event that a refund is due to the veteran (either the veteran was exempt or was overcharged due to a miscalculation), the lender will either send you a check (if you paid the Funding Fee upfront) or apply the refund to your loan balance (if you paid it out of loan proceeds).

 

The VA Funding Fee Demystified and Explained Part 1

Deciphering the VA Lender’s Handbook Chapter 8 Part 5

 

Explaining the VA Funding FeeThis article and the one following it will both be dedicated to explaining the VA funding fee in detail so that you as a borrower will know what it is, what it’s for, why it exists, and most importantly, how and when you will pay it and what the lender’s role in facilitating that payment is. The lender is required to verify your veteran status to see whether you are exempt from the funding fee, determine what amount you are required to pay (if not exempt), collect the required fee from you at closing, send the fee to the VA in a timely manner, get a hard-copy of proof that the funding fee has been paid, and submit that proof to the VA along with the packet containing the information on the newly-closed loan. If the borrower has elected to pay the funding fee from loan proceeds, the cash will not be due from the borrower upfront, but will still be paid by the lender.

 

We’re going to go through all the steps that the lender is required to take, and talk about how they relate to you as the borrower. First is determining who is exempt from the funding fee and who is not. A general rule of thumb is that those currently receiving or eligible to receive disability compensation of at least 10% are exempt from the funding fee along with surviving spouses of veterans who died in service or due to service-connected disabilities. The Lender’s Handbook gives us the specifics:

 

• Veterans receiving VA compensation for service-connected disabilities.

• Veterans who would be entitled to receive compensation for service connected

disabilities if they did not receive retirement pay.

• Veterans who are rated by VA as eligible to receive compensation as a

result of pre-discharge disability examination and rating or on the basis of a

pre-discharge review of existing medical evidence (including service

medical and treatment records) that results in issuance of a memorandum

• Veterans entitled to receive compensation, but who are not presently in

receipt because they are on active duty.

• Surviving spouses of veterans who died in service or from service connected

disabilities (whether or not such surviving spouses are veterans

with their own entitlement and whether or not they are using their own

entitlement on the loan).

 

When a lender is working to verify whether you are exempt, they have a few options for things they can do. The lender can retrieve a completed and signed VA Form 26-8937 which indicates the borrower’s exempt status (this is the most common), or for veterans who elected retirement pay instead of VA compensation, a copy of the original VA notification of disability rating and proof of the retirement income the veteran is receiving will provide sufficient verification. For surviving spouses, the Certificate of Eligibility he or she receives will denote their status as an unmarried surviving spouse, who are exempt from the funding fee. If the lender is still unable to properly verify that the borrower is exempt after reviewing the appropriate documents, they must work directly with the VA on verification.
As a borrower, if you might be eligible for disability but have not been examined or applied for it, you can make life on yourself and your lender much easier by applying for it beforehand. Even if you decline the payments, being eligible for disability saves you thousands of dollars by exempting you from the funding fee. The lender is required to submit the documentation used to verify exempt status along with the loan packet, so be prepared to provide the lender a copy of anything they need. In cases where verification of exempt status cannot be done before loan closing, the funding fee must be charged as if the borrower was not exempt. If you are claiming exempt status but not able to verify it, the lender is required to include that information in the packet. The VA will make the final decision, and theoretically they will notify you either way. However, you should be prepared to follow-up with the VA, especially if your disability claim is still pending at the time of loan closing. You will want to contact your VA RLC to request a refund of the funding fee if they determine that you are eligible for disability compensation after-the-fact.

IRRRL Closing Costs – How Much Are They?

Understanding IRRRL Closing Costs

What are the Closing Costs on an IRRRL?

Here at Low VA Rates we often get the question, are there IRRRL closing costs? Unfortunately, the bad news is that there are closing costs when it comes to refinancing your home. However, as we’ll explain in a bit, the source of that misconception is actually one of the things that make the VA streamline refinance program such a great deal for the borrower. Any time you work through a lender to obtain a loan, there will be closing costs, whether you have to pay them or the seller offers to pay them for you. In the case of a VA streamline, or IRRRL, there is no seller, so you will definitely have to pay the closing costs on your new loan. However, that’s where the bad news ends. Everything else is good news – both in the things that can be included in closing costs and your options for paying closing costs.

What Closing Costs Can Be Added to a VA IRRRL?

Lenders HandbookThe VA lender’s handbook says that, in regards to IRRRLs, closing costs can include the VA funding fee (unless you are exempt – most borrowers are not, but speak with a VA-approved loan officer to find out if you are), and “any allowable fees and charges…including the lender’s flat charge”. These allowable fees and charges are listed in our “Are there Closing Costs on a VA Loan?” post. While the lender is allowed to charge for any of the things on that list if they are provided, not all of them are required on an IRRRL. For example, an official VA appraisal of the home is not required in an IRRRL, and therefore you won’t be charged for it. Also, your income and employment do not need to be evaluated and verified again, so there should not appear any charges for those things. All in all, the simplified, streamlined process of the VA IRRRL actually makes it cheaper as well. But hey, we’re not done with the good news yet.

Not only will the charge for closing costs be smaller on an IRRRL than for a standard refinance or new purchase loan, but you can actually finance every dime of closing costs on an IRRRL into the new loan. In other words, you can get an IRRRL with truly no money down whatsoever. The VA instituted this policy in order to open up the benefits of the IRRRL to more veterans – especially the ones who need it most. Since those who are in the most need of better mortgage terms also often do not have very much money saved to cover closing costs, those closing costs can be a very real barrier to a veteran improving their financial situation. The VA recognizes this and has done their best to make the benefits of the IRRRL available to as many veterans as possible.

But wait, there’s more… The VA will also allow you to purchase and finance two discount points into the loan amount. Buying discount points from the lender means you pay the lender a certain amount of cash in exchange for a lower interest rate. If you want to understand discount points better, give a VA-approved lender a call and ask them your questions. They will be able to explain it better in context than we can here. You can purchase more than two discount points on an IRRRL, but you can only roll the cost of two into the loan amount. Allowing you to roll discount points into the loan amount at all is extremely generous, and stopping it at two protects the lenders from shouldering too much risk without enough return. The VA does its best to make its loan program attractive to both borrowers and lenders.

How to Calculate Closing Costs on a VA IRRRL

A word of caution: it is wonderful to be able to roll closing costs into the loan amount. However, remember that if you don’t pay them upfront, you are going to be charged interest on them right along with the rest of the loan. An extra $5k-10k on your mortgage may not seem like much, but the effect it has on your amortization schedule and the total amount of interest paid can be unpleasant. If you have the ability to pay your closing costs upfront without putting yourself in too much of a tight spot, it is usually the best call to do so. Just like paying cash for a house saves you money in interest vs. financing it with a lender, paying cash for your closing costs instead of financing them also saves you money.

For your reference, here is the relevant portion in the VA Lender’s Handbook about closing costs on an IRRRL:

The following fees and charges may be included in an IRRRL:

  • the VA funding fee, and
  • any allowable fees and charges discussed in section 2 of chapter 8; such as all allowable closing costs, including the lender’s flat charge.

However, There Is One LimitationAvoiding Hidden Closing Costs

While the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount.

Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan.

The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met.

For IRRRLs to refinance loans 30 days or more past due (which must be submitted for prior approval), the following can be included in the new loan:

  • late payments and late charges on the old loan, and
  • reasonable costs if legal action to terminate the old loan has commenced.

FAQ; How many payments qualifies an IRRRL

How Many Payments Must I Make on my Loan Before I can do a Streamline?

 

How many payment qualifyThis 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.

 

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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.

 

Streamline VA Refinance – How Long does it take?

The Streamline VA Refinance Timeline?


How long do streamlines take

The process timeline is a fairly common question we often get about VA streamline refinances. Often, borrowers who are interested in the streamline VA refinance loan would like to get it done as quickly as possible. In cases where the borrower is getting an IRRRL to lower their monthly payment to something manageable, getting a refinance finished quickly can make the difference between becoming delinquent on the loan and staying current. Obviously, one can expect a streamline to be faster than a standard refinance, else what’s the point of having a streamline option. So how fast is a streamline? Each loan is different, but here are some time frames to get you in the ballpark.

 

The rule of thumb for the length of time it takes to get an IRRRL is 30 days. In other words, if you give yourself 30 days to complete an IRRRL, you’re probably safe. That being said, streamlines can be done in as little as 10 days. IRRRLs can be completed so much faster than normal refinances because there is no requirement to have a VA appraisal done on the home, and there is no need to verify income, employment, or assets of the borrower in order to get approved. Simplifying the underwriting process makes the loan process much faster than otherwise. Just because IRRRLs can be completed in 10 days, however, does not necessarily mean that your IRRRL can be completed that quickly. For answers that are specific to your exact circumstance, speak with a VA-approved loan officer and ask how long it will take. For information on common things that can affect the time it takes to close an IRRRL, continue reading this blog post.

 

Of the things that affect the time it takes to get approval, some of them you have direct control over, and some you do not. The single most common reason that IRRRLs take longer than they have to is the borrower not providing the information and documents the lender requests in good time. If it takes you three days to get back with the lender after they’ve requested a document, then you just added three days to how long it will take before approval. When you’re first speaking on the phone with a loan officer to schedule an appointment, ask him or her what documents you should bring with you. Write down a list of every document they tell you. Then ask him or her what other documents are likely to be needed during the process. If you can, bring those to the initial meeting as well. Otherwise, find a way to scan them onto a computer (if they’re not already electronic), then put all of the documents on a thumb drive and carry the thumb drive with you until the loan closes. That way, when your loan officer calls or emails you asking for one of those documents, you can plug your thumb drive into the nearest computer and email them to him or her immediately.

 

There are other things that you don’t have direct control over. For example, if you’re trying to get an IRRRL to refinance a delinquent loan, if it can be done at all, it will most likely have to be sent to the VA for prior approval before the loan officer can close on it with you. Most IRRRLs do not need to be sent to the VA for prior approval, but in cases where the existing loan is delinquent, or in cases where the obligors on the loan are changing (adding a spouse, removing an ex-spouse, etc.) the IRRRL may have to go to the VA for prior approval before the lender can close on it. In other cases where obligors have changed, an IRRRL may not be possible at all. Consult with a VA loan officer to find out if you can get an IRRRL for your VA loan.

Getting the Documents to the Lender

In most cases, if the borrower is prompt with getting the documents and information to the lender, an IRRRL can be completed very quickly. The best way to find out exactly how long your IRRRL will take is to speak with a VA loan officer and explain your specific situation.

 

FAQ; How Many Times- VA Streamline

How Many Times Can I do a VA Streamline?

 

Theoretically there is no limit to how many times you are allowed to use an Interest Rate Reduction Refinance Loan (IRRRL) to refinance your mortgage. The VA has no set amount of years you have to wait between refinances, and places no limit on the number of IRRRLs you can do in total. While the VA sets no limit on how many IRRRLs you can theoretically do, the VA requirements for getting an IRRRL, lender requirements for approving an IRRRL, and your own limitations all provide practical restraints to the number of times you can realistically get an IRRRL done on your home. We’ll cover what those are in order to help you be as prepared as possible for the future.

 

First, the VA requires that the resulting interest rate from an IRRRL be lower than the rate on the original loan. This provides some major practical restraints because when current market interest rates are higher than the rate you have on your loan, getting an IRRRL is unlikely to yield a lower interest rate for you. Since getting a lower interest rate is a requirement of the IRRRL (unless you’re refinancing from an ARM to a fixed-rate mortgage), you may be limited in how many times you can do one by nothing more than market interest rates. An extension of the interest rate rule is that your monthly principal+interest payment must go down unless you have a shorter term on your new loan than the original. You will also be limited by the things that are and are not possible with an IRRRL. If you need to get cash out on your loan, you won’t be able to use an IRRRL to do so, or if the obligors have changed on the loan, you’ll need to use a normal refinance to get them changed.

 

FAQ VA StreamlinesLenders may also impose limits on how often they are willing to let a borrower do an IRRRL, or refinance at all, for that matter. While most lenders don’t have specific policies in place to limit how often they will approve refinances, it’s going to raise some eyebrows if you are refinancing more than once every 3-5 years. Refinancing so often is usually not practical or beneficial to the borrower, so if a borrower is refinancing that often, it raises a lot of questions that the lender will want answers to before approving the refinance. In some cases, a lender may not approve the loan simply because of how little time it has been since the last refinance. In this way, in practice a borrower is limited to a new IRRRL every 3-5 years at the most. What is more common is for a borrower to purchase a home, use an IRRRL to refinance it once a few years later, then sell it a few years after that and move to a new home.

 

There are also practical restraints to doing an IRRRL very frequently that are important to consider, and have everything to do with you. Each time you do an IRRRL, you are costing yourself thousands of dollars in closing costs. While every dime of those costs can be rolled into the loan amount, that also means those costs will be accruing interest and you’ll end up paying more by the end than if you had paid all of it upfront. Even when you are able to secure a lower interest rate, it takes years for a lower interest rate to translate into enough savings to make up for how much money you are spending in closing costs. Talk with your lender for more details on this, and he or she should be able to make a graph or table that will show you your “break-even” point from the saved interest vs. closing costs.

 

As easy as an IRRRL is to get, it’s still a headache, and with so little practical benefit to refinancing frequently, even with an IRRRL, it doesn’t always make a lot of sense to do it. That being said, for most borrowers who just want to make sure that getting an IRRRL now won’t ruin their chances for getting an IRRRL sometime down the road, there’s nothing to worry about. You should be able to refinance your home with an IRRRL as many times as any reasonable human being would want to.

 

FAQ Refinance Appraisal

Do I Have to Get an Appraisal for a VA Refinance?

 

You might; it depends on what type of refinance you’re getting. This can be a major factor in which type of refinance you choose to use. Even on a conventional loan, the inspection that determines the fair market value of the home can sometimes throw a wrench in the works. If the value comes in too high, the seller may decide to raise the price of the home, and be unwilling to sell it for lower. If the price comes in too low, the seller may not be willing to lower the price of the home and if you still want to buy it, then some of your down payment will have to go towards getting the price down to what the lender is willing to make a loan for. If the seller is willing to lower the sale price, then the only major downside is that the home you’re buying isn’t worth as much as you thought it was.

 

With the VA loan program, a home must be appraised by an official VA appraiser. The appraisal is very similar to a normal home inspection, but with two specific focuses: determining the fair market value of the home, and making sure that the home is safely inhabitable and suitable for the veteran’s needs. Where a conventional inspection just determines the fair market value and leaves it up to the borrower, a VA appraiser has the power to put the kabosh on the whole thing. Because of this extra level of power that the VA appraiser has, the appraisal process is often a point of stress, frustration, and complication in getting a VA loan. Needless to say, borrowers looking to refinance want to know if this rather onerous step is one that can be skipped. The answer, as mentioned above, depends on what kind of refinance you are getting: an Interest Rate Reduction Refinance Loan (IRRRL), or a cash-out refinance.

 

The IRRRL is the VA’s streamline refinance option, and as such, it makes speed, ease, and affordability its highest priorities. If you use an IRRRL to refinance your home, then a new appraisal on the property is not necessary. There’s a catch to this, though, and that is that really the only thing an IRRRL can be used to do is get a better interest rate – anything else you want to use a refinance to do will have to be done with a normal refinance. What makes an IRRRL so much faster is that it reuses much of the underwriting information from the original loan, with the assumption that none of that information has changed much. Because it would require a determination of the current value of the property, as well as other underwriting information, an IRRRL cannot used to get cash-out on the equity in the home.

 

Do I need and appraisalOn the flip-side, any other type of VA refinance requires a new appraisal, and totally new underwriting, which is what enables them to offer such options as cash out. Generally speaking, if a VA refinance is not an IRRRL, it is referred to as a cash-out refinance. This is somewhat misleading, however, since the term refers to not only actual cash-out refinances, but cash-in refinances and debt consolidation loans. If you’re getting anything other than an IRRRL, you will be required to get your home appraised again by a VA appraiser. In many cases, this actually works to your advantage – if you’ve added $10k to the value of the home since you bought it, you want that reflected in the amount of equity you have in the home. Why? Because you can only get as much cash out as you have equity in the home. This is also why a new appraisal enables a borrower to get cash out on the refinance – because the current fair market value of the home must be established in order to calculate how much equity the borrower has in the home.

 

In summary, if you use an IRRRL to refinance your home you will not be required to get it re-appraised, but you also have significantly fewer options with your refinance. If you use a cash-out refinance, you will need to get a new appraisal, but you can do a lot more with your new loan.

 

Time for a VA Streamline Refinance?

VA loans are a special loan program designed specifically for veterans, issued by approved lenders, and guaranteed by the federal government. The VA Streamline Refinance is the most common loan type within the VA loan umbrella, and is officially known as an Interest Rate Reduction Refinance Loan (IRRRL).

VA loan closing costs can be rolled into the cost of the loan, allowing veterans to refinance with no out-of-pocket expenses. Sometimes it is also possible for the lender to take the brunt of the cost in exchange for a higher interest rate on your loan.

The Time is Right!

VA streamline loans no longer need a home appraisal or 620 FICO scores! Perhaps you have tried and failed to get a VA streamline in the past. Don’t let that derail your efforts today—this is a different financial landscape than even a year ago. Apply again now.

To qualify for a VA Streamline loan, you must meet the following requirements:

  • Be current on your mortgage with no more than one 30-day late payment within the past year.
  • Your new monthly payment for the IRRRL must also be lower than the previous loan’s monthly payment. (This condition does not apply is if you refinance an ARM to a fixed rate mortgage.)
  • You must not receive any cash from the IRRRL.
  • You must certify that you previously occupied the property.
  • You must have previously used your VA Loan eligibility on the property you intend to refinance. (You may see this referred to as a VA to VA refinance.)

Interest rates are still in a range that should be considered “the chance of a lifetime.” That is not just exaggerated talk. Historically, VA interest rates are in a range that should motivate every veteran to look more closely into a VA mortgage loan or a refinance.

Fixed interest rates are still very attractive for long-term loans. But before you limit your thinking, you should also consider the amount of time you plan on being in your home. If you’re only going to be in your home for a few more years, it may make sense not to refinance out of your ARM. If you’re going to be in your home less than seven years, it might be a smart move to refinance to an ARM loan.

A drop of just one half to three quarters of a percentage point in interest can lower your monthly payment. If you don’t refinance, you may be paying too much every month for your loan, and that’s never a good financial move. There are a couple of different ways you can lower your monthly mortgage payment.

  • You can simply refinance to a lower interest rate. A lower rate generally means a lower monthly payment.
  • You can change the term of your mortgage. For instance, if you have a 15-year mortgage, you can lengthen the term to 30 years. Since the balance of your mortgage is spread out over a longer period of time, your payment is lower. However, if you have a 30-year mortgage and one of your financial goals is long-term savings, you may want to consider shortening your term to 20 or even 15 years. Your payment will be higher, but you will pay much less in interest over the life of the loan, saving you thousands of dollars in the long run.

Remember, the VA streamline refinance loan (IRRL) lowers your interest rate by refinancing your existing VA home loan. By obtaining a lower interest rate, your monthly mortgage payment should decrease. Now that’s some good financial news. Act on it!

Get Started With Your VA Loan Today

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