Specific Questions on When You Can IRRRL

No, IRRRL is not some foreign version of the name Earl, though it does sound exactly the same. Technically, IRRRL is not a verb, either, but once you know what an IRRRL is, you’ll know what someone means when they use it as one. IRRRL stands for Interest Rate Reduction Refinance Loan. IRRRL is the VA’s streamline refinance option. A streamline refinance is where the information for a refinance is largely taken from the previous loan, cutting down on most of the time and grief associated with underwriting a loan. Streamline refinances are different from typical refinances because a typical refinance is handled nearly identically to a new purchase loan; you’ll need to get another credit check, fill out a whole application with income and employment information, the whole 9 yards. The VA streamline refinance option, known fondly as IRRRL, avoids most of that hassle and allows the lender to use existing information for the most part.

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Now let’s get specific. Let’s say we have a borrower who has been using a VA loan to pay off his house. He’s now in the process of refinancing his home with an IRRRL, but plans on renting the house later and is hoping to purchase an even bigger home with his VA loan benefits. Can he do this? Short answer: that depends. Long answer: start with the short answer and read on through the rest of the article. For our borrower (let’s call him Fred), there are a few important questions that need to be answered before he can get a definitive “yes” or “no” on his dilemma. One of the first questions we would need to ask Fred is how much of his VA loan entitlement he has left, if any at all. If the answer to this question is “not enough” or “none”, then we need go no further; Fred cannot get a bigger home after he IRRRL’s his current one.

If Fred gets past the first question, he faces another one: What is his current debt-to-income ratio and what would it become upon purchasing a second home with his VA loan benefits? The magic number here is 40, as in 40%. If either of the above debt-to-income ratios is above 40%, then Fred’s hopes and dreams get squashed like the frog from Frogger. These two questions really have one goal, and that is to ascertain whether Fred can really afford a second loan. If Fred can’t, then there’s no way he’ll be able to use his VA benefits to purchase another home. Of course, Fred’s probably wondering if the amount he’ll be charging tenants for rent on the first home can be used to offset his debt-to-income ratio. The answer to that question hinges on a far more important question: is Fred’s lender willing to work with him?

There are some specific rules regarding IRRRLs in the VA Lender’s Handbook, or VA Pamphlet 26-7. Essentially the rules say that the veteran’s entitlement will remain the same before and after the IRRRL. From the Handbook: “No additional charge is made to the veteran’s entitlement for an IRRRL; such as, the amount of the veteran’s previously used and available entitlement remains the same before and after obtaining the IRRRL.” In other words, if Fred has enough entitlement leftover to buy a second home before he gets an IRRRL, he’ll still be able to after his IRRRL. On the flipside, though, the original entitlement that Fred used to get the first loan will not be restored in any amount until the IRRRL is paid completely off.

So theoretically, if Fred has enough entitlement left to buy a second home, he will be able to get the bigger home he so strongly desires. However, we still have one big question to resolve: Will the lender work with Fred? This is not an automatic yes. If Fred can safely answer the first two questions affirmatively, the lender can still run Fred through the proverbial ringer and check out all his financial qualifications, credit scores, income information and any other compensating factors that may come into play, and is never obligated to approve a loan. That being said, if Fred can reasonably afford the loan and there’s not too much of a risk that he will default on either loan, the lender would be a fool not to allow it, because it means more money for him. Usually, if the borrower can financially handle the second mortgage, the lender will approve the loan and the borrower can purchase their second home.

The Rules on Refinancing When a VA Loan is Involved

Refinancing takes many forms, because there are many different situations in which a borrower would want to refinance. It’s not uncommon for a borrower to currently have a conventional loan and decide after a few years that it would be smart to use their VA loan benefits, so they refinance into a VA loan. Another situation might be that a borrower uses their VA benefits to open a new mortgage and would like to refinance using their VA benefits again. Both situations are common and not usually problematic to the borrower or the lender.

It makes perfect sense why someone would think that if they had a conventional mortgage the only option for refinancing is to refinance into another conventional mortgage. In fact, this was true for a long time, and only recently has it been changed to allow a conventional loan to be refinanced into a VA loan. As of the Veterans Benefits Improvement Act of 2008, this option has been available to VA-eligible borrowers who either already had a mortgage by the time they became eligible for a VA loan or opted not to use their VA benefits at first. It’s also possible for a VA loan to be refinanced into a conventional loan, but seeing as how this never provides the borrower with any benefit, not much detail is given on that option. From the VA: “Veterans with conventional home loans now have new options for refinancing to a VA- guaranteed home loan…These new options are available as a result of the Veterans’ Benefits Improvement Act of 2008, which the President signed into law on October 10, 2008. Veterans who wish to refinance their subprime or conventional mortgage may now do so for up to 100 percent of the value of the property, which is up from the previous limit of 90 percent.”

As you can imagine, this is exciting news for veterans everywhere because it gives them more flexibility in using their VA benefits, as well as making the benefit even more substantial than it already was. To refinance from a conventional loan to a VA-guaranteed loan, the process is much like a conventional to conventional refinance combined with opening a new VA mortgage. In other words, there’s a lot to it. Someone refinancing to a VA loan will be met with a standard loan application, the normal credit checks and employment and income verifications, as well as all of the hoops of getting a new VA loan, including getting a Certificate of Eligibility (which you’ll need to do first thing), having an official VA appraiser appraise the value of the home, and all of the other wonderfully enjoyable steps to getting a VA loan.

However, don’t let those things stop you or even delay you in refinancing to a VA loan. The benefits available in a VA loan are substantial and can save you thousands of dollars a year in interest savings and lower monthly payments. For a conventional to VA refinance, the streamline refinance option offered by the VA, the Interest Rate Reduction Refinance Loan (IRRRL), is not available. The IRRRL is only available if the refinance is a VA loan to VA loan refinance. The borrower should also be prepared to expect that the refinance to a VA loan is going to use his or her entitlement amount. Each veteran only has a certain amount that they are eligible to have guaranteed by the VA, and the amount you refinance for will, in most cases, cut into that amount.

If you’ve used your VA benefits before, in order to use them again or refinance a conventional mortgage to a VA loan, you’ll need to furnish proof that you’ve completely paid off any amount owed on a VA loan that was previously opened. This proof can easily be combined with the application for restoration of entitlement. There’s a lot of flexibility built into the VA loan system – especially with refinances. This flexibility is intended to offer a variety of options for any kind of situation so that the veteran can choose the best option for them. In order to make sure you make the best decision for your new VA loan or refinance, consult with your loan officer or a VA-approved lender to get accurate and complete information on what your choices are.

When an IRRRL Can Get a Little More Complicated

The VA offers a streamline refinancing option called the Interest Rate Reduction Refinance Loan, or IRRRL for short. As the name implies, the purpose of the IRRRL is to offer veterans a streamline refinance that can result in a lower interest rate, and generally a lower monthly payment. The IRRRL is a great option for veterans hoping to get more favorable terms on their mortgage for the rest of the loan. Refinancing in general can be done for one of several reasons: it could be that the borrower has saved up a large sum and would like to take a chunk out of the remaining principal all at once, then get new terms based on the remaining loan amount. It could be that the borrower is looking for a way to acquire a relatively large sum of money for a major purchase like a car or to start a business, so they refinance for an amount slightly larger than what they still owe on the home. And last, it could be simply that the borrower is looking for a lower interest rate and lower minimum monthly payment, and they now qualify for a better interest rate.

Streamline refinancing is usually a very attractive option because it usually does not require any further underwriting – the majority of the information is transferred over from the previous mortgage that the refinance is replacing. It would naturally come as a shock, then, when many borrowers applying for an IRRRL are asked to complete a new credit application or have their home re-appraised. Generally speaking, the VA does not require these things to be done over in order to apply for an IRRRL, but like most things in life, there are exceptions to this rule. What those things might be, well, that’s what we’re covering here. It may come as a relief that much of it hinges on the borrower.

For the most part, any IRRRL that would require a new credit application or appraisal would do so because of the refinancing needs of the borrower. Usually, the reason a borrower has for wanting to refinance and the results they’re hoping to see from the refinance can necessitate a new credit report and/or home appraisal. More specifically, the borrower’s wants or needs might end up raising the monthly payment from what it used to be. This is where a potential problem arises; just because the borrower was able to meet the previous monthly payment does not mean they will be able to meet a higher one. These borrowers can still get an IRRRL, there are just more steps involved.

The VA starts to get uneasy when the monthly payment is going to increase by 20% or more. In other words, if a $1000 monthly payment goes up to at least $1200, the VA will have extra steps to go through before the IRRRL can be approved. At that point, it means that the lender needs to go through the necessary paperwork to establish that the borrower has the income and stability to support the new amount. The VA regulations state:  “If the monthly payment…increases by 20 percent or more, the lender must determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable…” But wait, folks there’s more.

Not only do those underwriting steps need to be repeated, but the lender must also provide a certification that the the borrower is financially prepared to take on the higher monthly mortgage payment, and the borrower and lender must both sign a statement that acknowledges that they understand the effect that the IRRRL will have on the monthly payments and interest rate. The statement must take all of the pertinent information from the previous loan and the new loan and compare them side-by-side, so that there is no way to misunderstand what the effects of the new loan will be.

Even in cases where the VA does not require an appraisal or credit check, the lender has flexibility in being able to require an appraisal if it is appropriate in the given situation, but they may be expected to account for and explain why an appraisal is being required.

Using a Streamline Refinance – What’s the Maximum You Can Get?

The VA has a streamline refinancing option available to VA-eligible borrowers. The VA’s streamline refinance option is called the Interest Rate Reduction Refinance Loan, or IRRRL for short. Refinancing a mortgage essentially means getting another mortgage that pays off the existing one and starts anew, usually with a lower interest rate. Refinances can also result in less principal to pay off if the buyer puts cash in, or a lump sum for the buyer to have as extra money for another purchase if the buyer wants to take cash out. A streamline refinance is different from a regular refinance option in that the loan application information from the original loan is largely re-used, making the underwriting process and the amount of fees involved with the refinance much smaller.

Refinances, especially streamline refinances, vary in process and requirements for each type of loan and even from lender to lender. For a VA loan, regardless of what kind of loan you have (ARM, Hybrid ARM, fixed-rate, etc.) the streamline refinance option available to you is the IRRRL. The day you apply for a new mortgage on a new home you’d like to buy, you’re most likely not thinking much about the time when you’ll be refinancing that loan, unless you’re quite the forward thinker. After life happens and tough economic times hit, a streamline refinance option may be the thing that helps you make ends meet, or just make life for your family a little more comfortable. Refinances, especially a VA streamline refinance, can get you a lower interest rate and lower monthly payments, easing the burdens on your bank account.

The VA takes care of those paying off VA-guaranteed loans. It is actually required for a streamline refinance to provide a certain level of “net tangible benefit” to the borrower. Which means that if you use an IRRRL on a VA loan, you must have either a lower monthly payment or some other form of net tangible benefit that you receive as a result of getting the IRRRL. This is just another way that the VA helps look out for its veterans. But just how large can this net tangible benefit be? How much can the IRRRL be used for?

Back to the new first-time home buyer who is just applying for their VA loan for their home. This person is wondering what the maximum amount he can get for his loan is. Generally speaking, VA loans are limited to what the appraiser deems to be the reasonable value of the property, as well a relatively small amount for energy efficient upgrades to the home and the VA funding fee. Per the VA lender’s guide: “the amount of the loan to the reasonable value of the property shown on the Notice Of Value plus the cost of energy efficiency improvements up to $6,000 plus the VA funding fee”.

Knowing that, we can establish a pretty reasonable expectation for how much an IRRRL might be approved for. An IRRRL is very similar to a regular loan, with some differences. Instead of the reasonable value of the home as the base amount, an IRRRL uses the amount that the borrower still owes on their current VA loan. In addition, another $6000 of energy efficient upgrades can be added onto the amount, as well as certain allowable fees and charges, two discount points, and the VA funding fee. Those additional items will bring your monthly payment up even as a better interest rate brings it down, so it may be a toss-up whether you decide it’s worth it. It comes down to the purpose of refinancing in the first place.

Remember that if your monthly payment increases by more than 20% as a result of the IRRRL, the VA requires that a new credit check be completed using current information. That’s an extra step and hassle, and it may significantly affect the interest rate you get offered. It’s important to evaluate how many ‘extras’ you can handle and still have mortgage terms that will serve you and your family best in the long run. As always, if you have more questions, seek the advice of a VA-approved lender.

Do You Qualify for a Refinance?

A popular refinance option has been the Home Affordable Refinance Program (or HARP 2.0). But hold on a second! HARP has its limitations. It’s most notable limitation is that it is a program available only to homeowners whose loan is owned by Fannie Mae or Freddie Mac.

So, your VA mortgage loan is not eligible for a HARP refinance. Did you know that those with a VA loan should strongly consider a VA streamline refinance instead? A VA streamline loan is better than the HARP program in several ways:

  • It does not require an appraisal.
  • It does not require private mortgage insurance (PMI). (This fact alone can save you a hundred dollars a month and more on your mortgage payment.)
  • It does not require income or asset documentation.
  • It has more lenient qualification standards.

Five Reasons to Refinance

Here are 5 strong reasons why a VA streamline refinance could really benefit you financially:

  1. Refinance to lower your interest rate. I have made the point before, interest rates are near a record low. And as I write this, 30-year mortgage rates are hovering above 3 percent and 15 year loans can be secured for an even lower rate. If your home is now financed at a higher interest rate, it may be a great time for you to consider refinancing. You could literally save tens of thousands of dollars just by taking the time to fill out the necessary paperwork and gather the needed documents.  Take advantage of expert help and talk to your VA mortgage loan expert.
  2. Refinance to shorten the term of your loan. If you have a 30-year mortgage, now may be a great time to consider refinancing. With record low interest rates, that 15-year mortgage may not be much more expensive than the 30-year loan payment. An experienced veteran loan expert can tell you in just minutes if this kind of a refinance makes sense. (When I refinanced our home from a 30-year mortgage at about 6 percent to a 15-year mortgage at 3.625 percent, the payment only increased by about $100.)
  3. Refinance to lower your payment. Refinancing to a lower VA interest rate could mean drastically reducing your payment and saving tens of thousands of dollars in interest. Lowering your mortgage payment is a great strategy that can free up hundreds of dollars per month for investing or saving. Although refinancing to lower your payment could increase the term of your loan, it could make sense in your particular situation.
  4. Refinance to cash out home equity. A VA cash out loan could be a great financial move in some circumstances. For instance, it may make sense to cash out some of your home equity in order to buy an investment property or start a business. It mostly depends on what you are trying to achieve and if you are someone who can manage your debts responsibly.
  5. Refinance from an ARM to a fixed rate loan. If you currently have an adjustable-rate mortgage, now may be the perfect time to refinance into a fixed-rate loan. Interest rates are low now, and projected to remain low, but they won’t remain this low forever. Locking into a low fixed rate can protect you from rising interest rates in coming years. Additionally, a fixed payment is easier to plan and budget for.

Can Refinancing Help You with Your Financial Goals?

Make a quick review of your financial goals What are you planning for your financial future?

  • Do you want to lower your monthly mortgage payment?
  • Do you want extra cash flow for savings or investment?
  • Do you want to pay off your mortgage and get out of debt faster?

This is a rare moment in the history of home mortgage rates; your’s is a rare opportunity with VA interest rates a remarkable value.  With some thorough research and planning, refinancing your mortgage could turn out to be the best thing for your family and for your pocketbook.

Get Started With Your VA Loan Today

Time May Be Running Out To Refinance

Have you considered the VA IRRRL but haven’t refinanced yet?  Well your time may be running out.  Fed Chairman Ben Bernanke discussed how the central bank might wind down is financial easing policy and that set off a spark of activity in the markets.  He stated that the Fed could scale back the pace of its bond purchases at one of the “next few meetings” if the economic recovery looked set to maintain a forward momentum.  As a result of his statements, interest rates rose and the mortgage industry braced for the worse as overall application activity was down 8.8 percent and refinance applications were down 12.3.

Consider the following benefits of the VA IRRRL and ask yourself, “Why haven’t I taken advantage of this yet?”

The VA Streamline refinance home loan is without a doubt the best mortgage refinance loan on the market. No other refinance loan program is as simple and easy to qualify for and there are so many unique benefits that come along with it. Although, In order to do a VA Streamline refinance, your current loan must be a VA home loan.

One of the biggest benefits of the VA Streamline refinance is that you do not have to go through credit qualification.  There is absolutely no need for lenders to pull your credit history and look at your scores. However, your existing mortgage must be current and you cannot have had any more than one thirty- day late mortgage payment within the last 12 months. In order to do a VA Streamline refinance, your current loan must be a VA home loan.

Another benefit is that the regular underwriting process does not apply. Your lender is not going to check to see how much money you make. So you do not need to send in bank statements, W2’s, paychecks, etc. Since you have been making your mortgage payments, they know that you have the means to keep it up. Along with this, lenders are not going to be calling your employer to make sure that you are still working with them before considering giving you a loan. With a VA Streamline refinance a income verification is no issue to you at all, since they will not be doing that.

VA Streamline refinances in most cases can allow you to arrange your refinance to be completed with absolutely no out of pocket expenses. All of the closing costs and pre-paid can be rolled into the new loan amount and on top of that there is no appraisal required. As you can see there are so many unique benefits of a VA Streamline refinance as listed above, if it sounds like this is for you, take advantage of this amazing opportunity.

But is the refi boom really over?  Well according the Mortgage Bankers Association, it’s starting to wind down as they are reporting a decline in mortgage applications.

“”We have been expecting that refinancing volume would drop pretty sharply in the second half of 2013,” said Mike Fratantoni, the MBA’s vice president of research and economics.  “This refinancing boom has been going since late 2008, early 2009. The best credit borrowers have been able to refinance a couple of times. As rates tick above those levels, that group of borrowers is no longer going to have an incentive to refinance.”

Fratantoni expects refinancing of mortgage applications to drop significantly from current levels “to below 50 percent before the second half of the year,” he said. “Right now our forecast is a 74 percent refinancing share in the first quarter, 67 percent in the second, 46 in the third, and 42 in the fourth.”

In 2014, refinancing applications will account for about 36 percent of all mortgage applications— which is less than half of their current stake.

So is it time to panic and rush into anything?  Maybe, maybe not.  Not everyone is pessimistic on what the market is going to do.

Bob Walters, the chief economist at Quicken Loans says the following. “I think the Fed will hold strong to make sure the economy is on solid footing.  I think we’re good through 2013, going beyond that, it starts to get a little fuzzy.  The market’s starting to price some of that uncertainty in.”

By the end of this year we could see rates higher but not by a lot.  Rates could hover anywhere between 4.25 and 4.75 percent on a 30 year fixed mortgage which is up from the current par pricing of 3.75 percent.  We could see refi’s drop to half or slightly more than that of all mortgage applications by the end of the year.

Even though refinance application are down nationally, we are beginning to see that loan customers are considering different loan products, namely adjustable rate mortgages because they offer such low rates for periods of up to 7 years on a VA Hybrid.

Consider the following: Most 30 year mortgages are only on the lenders books for a period of 5 to 7 years before the consumer refinances again.  With VA Hybrid rates at or below 3.5% they are a great option for anyone looking to lock in savings.

In closing:

The current market condition is a “good-news, bad-news” situation.  The economy seems to be finally see an improvement and getting its legs back.  As a natural course, interest rates are going to be going back up.  For any homeowners that are still waiting for interest rates to fall even further, that time may have passed. If you continue to wait until the end of the year to refinance you may end up with a rate that is much higher than it is today.  Whether you decide to take advantage of the current 30 year rates, reduce the term of your loan or go with an adjustable rate mortgage, it may be time to pull the trigger on refinancing if you haven’t done so already.

VA Streamline Interest Rates Hit an all Time Low

If you have a VA loan with an interest rate that is higher than 4.75% fixed rate you really need to keep reading.

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For years, industry experts have told homeowners to quit sitting on the fence and to pull the refinance trigger. This has not been flawed or incorrect guidance from our real estate industry experts. The truth is nobody could have seen interest rates going any lower than they have been in recent past. The chart above shows that we have been sitting at historical lows for the past few years.

Now if you are one of those few that for some odd reason did not refinance at the behest of your family, friends, and financial advisors then please stop the insanity now and take advantage of these extremely low interest rates.

If you did refinance in the past there is still hope for you too! Rates are currently so extremely low that we have clients that have refinanced in 2003, again in 2007 and now again in 2010! If it makes sense to refinance then do it. There are no limitations to hold you back on taking advantage of the program.

If you are an active or retired military service member and have a VA loan on your home now then please consider the VA streamline refinance. These are some of the easiest loans there are for the borrower. Some of the many benefits of this streamline refinance are:

· No appraisal needed

· No income or employment documentation needed

· Fast processing times

· No mortgage payment needed for the next two months

· Save hundreds every month on your monthly payment

This loan can save you so much money, and the best part is, with Low VA Rates the process is virtually done for you! We try to get it done fast and easy with as little work as possible on your end. This means a stress-free process for you and more time to spend on the things you love, instead of worrying about your loan process.

Call Now and speak to an experienced VA loan agent. There is no obligation, it is pain-free and we commit that it will take no more than 2 minutes to see how much you can save.

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