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!
Is it even possible to refinance a VA loan with a second mortgage attached to the property? Well, to understand if this is possible I need to discuss what is involved when there are multiple mortgages on one property. A second mortgage is given to a Veteran homeowner when they have equity in their home and they want to borrow against it; so they go to a lending institution and take out another loan against the home. Now there are 2 mortgages listed on the title. This can be problematic when trying to do a streamline refinance. Mortgages are recorded on a title based on dates. When a Veteran uses his/her VA loan to buy a home, then there is a Mortgage recorded on the title as a first mortgage (recorded first). Then they take out another mortgage on the same home (recorded second). This is pretty simple to understand.
When VA mortgage rates drop and a Veteran wants to do a streamline (non-credit qualifying loan) refinance and they have a second the mortgage company must now complete a subordination request. This is simply preparing documents or a loan package for the second mortgage company outlining the details of the streamline refinance transaction. You see since the second mortgage company has an interest in the property (they loaned money on it) they must agree to stay in second lien position, or subordinate to the new first mortgage. Most of the time a second mortgage company will agree to do this, but there are instances when they will not. There are 2 main reasons for this – 1. The borrower is late on the payments with the second mortgage company. 2. The cost or investment to refinance the first is too high and might affect the loan to value based on the original appraisal. If the second mortgage company refuses to subordinate then the refinance of the first will not take place.
As a Loan Officer, this can be very frustrating at times because I can see much value when doing these streamline loans for Veterans. There isn’t much recourse we can take when a second mortgage company denies a subordination. I would say about 75% of the time we can obtain an agreement from the second mortgage company. My suggestion to all Veterans who have second mortgages is to attempt to refinance because the odds are in your favor that your second mortgage company will agree to remain in their current lien position and this works for California VA Loan, Florida VA Loan, and really all VA Loan types.
1. Am I getting the lowest rate possible?
Answer: We strive to offer lower rates than our competition. If you find a better rate out there and close on it and can show proof we will pay out $250. Depending on how much you want to invest cost wise into your mortgage determines how low of an interest rate you will get with the current market.
2. What are the Closing Costs rolling into a loan?
Answer: On a VA streamline refinance, all the closing costs are financed into the mortgage so you do not have to pay anything out of pocket at closing. Closing costs consist of an Origination which is what the broker charges for their services, Discount which is what the lender is charging you to buy down to the lowest rate possible and is tax deductible. Max discount on a VA loan is 2%. Other fees include Title, and escrows that need to be gathered to ensure that you do not have an escrow shortage on your new refinanced mortgage. You will receive a refund of your current escrow balance after funding.
3. Is it beneficial to do the refinance?
Answer: Yes, as long as you are saving enough money either in the long run or monthly. If you shorten your term (going from a 30yr to a 15yr term) your payment will go up in most cases, but the long-term savings are substantially higher. Each lender has a net tangible benefit that it has to pass in order for approval and also if not a benefit to the veteran they will not allow the refinance.
4. How long is the process of refinancing from start to finish?
Answer: On average the process takes around 3-4 weeks to process, underwrite, close and fund. In some cases, it may take longer if the veteran has judgments or other liens on the property.
5. When will I receive my refund of escrow balance?
Answer: After the refinance has closed and funded the previous bank or lender has a maximum of 30 days to send the escrow balance refund to the veteran after the loan has been paid off. The veteran should take the initiative and call their previous bank or lender and ask when exactly they should receive the escrow refund.
Veterans often hear the term “discount points” or buying down the rate and immediately think this is negative or bad. I would like to explain how this works and to define these terms. Veterans have the ability to get a better interest rate when buying a home or refinancing. Interest rates change daily and are affected by what happens in the market. Lenders offer these rates at certain pricing levels. These levels either pay back money to them or cost them money. The amount is determined by percentages, so for example if the rate is paying the lender 1.5 percent and the loan amount is $100,000 then amount being paid to the lender would be $1500. This also goes the opposite way. If the rate is costing 1.5 percent then the lender gets charged $1500 for offering that rate.
WHO PAYS FOR THE DISCOUNTED RATE?
Veterans pay for a rate that is discounted. This is why its called discount points. This is not a bad thing because it means lower monthly payments and more savings over the life of the loan. In a streamline refinance these points can be rolled into the loan and with a purchase the seller can pay up to 6% concessions and discount points can be included in that.
VETERANS BE CAREFUL
There is some caution to be taken when paying discount points. If a Veteran is refinancing a home and is paying discount points, he/she must realize their long term goals with the house and the length of time they plan on living there. Veterans should be able to recoup the amount of money used to buy the rate down shorter than the length of time in the house. In addition to this remember that the higher the rate the more the lender/broker is getting paid to do the loan. This should be gauged on what other companies are offering and the nature of the market. There was a time that the best rate being offered was over 12% and that was considered good.
SHOULD I PAY DISCOUNT POINTS?
Only you the Veteran can answer that question. Like I stated before, paying discount point is not a bad thing. Remember the old saying – “you get what you pay for”. This absolutely applies to discount points. Although it costs more up front, the only drawback is spending too much up front and then selling right away and then you lose a little money but thats all. By spending too little, you risk more because the cost of interest over time will be devastating compared to the cost of discount points. Its an Economic truth that its seldom possible to get the most by spending the least.