Investment

VA streamline refinancing: how it works and when to get one

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Borrowers with a current VA-backed mortgage could refinance at a lower rate in less time with streamlined VA refinancing. (Shutterstock)

If you have a mortgage backed by the Department of Veterans Affairs, you may be able to save money on your monthly payments with a Will streamline refinancing. A VA streamlined refinance lets you lower your interest rate or switch to a fixed-rate mortgage, and it’s only available to eligible military personnel, veterans, and their spouses.

Applying for a VA streamlined refinance is a relatively simple process and could save you thousands of dollars over the life of your home loan.

Although Credible does not offer VA loans, you can visit Credible to learn more about refinance a mortgage.

What is a VA streamlined refinance?

A streamlined VA refinance is an easy way for you to save money on your VA Loan. Refinancing your VA home loan with Simplified Refinance can help you lower your interest rate and monthly payments and switch from an adjustable rate mortgage to a fixed rate mortgage.

These loans are also known as VA interest rate reduction refinance loans or VA IRRRL loans.

HOW TO REFINANCE YOUR MORTGAGE

A Streamlined VA Refinance Replaces Your Existing VA Loan

When you refinance a mortgage loan, you replace your current mortgage loan with a new loan. The new loan will include new terms and conditions that you and your lender will agree to during the refinance process.

One of the main attractions of a streamlined VA refinance is a potentially faster refinance process. In a traditional refinance, borrowers must have an appraisal of their home. A VA IRRRL does not require an assessment, and there is less paperwork involved.

Will rationalize refinancing rates

On average, VA mortgage rates are lower than interest rates on conventional loans. So, if you have a higher rate on your VA loan, you may be able to save more money on your monthly payment by refinancing another VA loan rather than a conventional loan.

Since mortgage rates fluctuate and change every day, it’s important to shop around. Although Credible does not offer VA loan rates, you can compare refinance rates on a conventional loan with several lenders.

Benefits of a VA Streamlined Refinance Loan

A The VA simplified refinance loan has several advantages, including:

  • Lower interest rates — Many borrowers refinance to lower the interest rate on their loan. A difference of even 1% could save you hundreds of dollars on your monthly payment and on the total cost of your loan.
  • Quick close — VA simplified refinance loans have fewer underwriting requirements than a traditional refinance. For this reason, they generally offer faster closing.
  • Less documentation needed — You will need less paperwork since you are refinancing from one VA product to another. An IRRRL, for example, does not require Certificate of Eligibility (COE)but you still need to show your COE to your lender to prove that you have already used your entitlement.
  • No assessment required — In many cases, you won’t need a home appraisal when refinancing your VA loan with an IRRRL. No appraisal means a faster refinancing process and fewer fees.
  • No credit check required — Some lenders may have additional credit requirements that you will need to meet for approval, but generally VA IRRRLs do not require a credit check. You may be able to take advantage of lower rates even with a less than stellar credit score.

Disadvantages of a VA Streamlined Refinance Loan

While VA Simplified Refinance Loans have several advantages, there are also some disadvantages to consider:

  • Existing VA loan required – You can only qualify for a VA IRRRL if you currently have a VA loan.
  • Closing costs – Refinances are not free. VA simplified refinances typically require you to pay loan origination fees, title insurance fees, and registration fees, among other things. You can build most of these closing costs into the loan, but you’ll accrue interest on them over the life of your loan.
  • Financing costs — All IRRRL loans require a VA funding fee of 0.5% of the total loan amount. You can either pay it upfront or build it into the loan.
  • Restarts the term of the loan — Since you are replacing your old loan with a new one during your refinance, the term of the loan may restart if you choose to refinance a new 30-year loan. You have the option of refinancing to a shorter term loan (15 years), but your payment will likely increase.
  • No withdrawal — A VA IRRRL loan does not allow you to access the equity in your home. The main purpose of an IRRRL is to lower your interest rate. If you need money from your own funds, consider a VA cash-out refinance.

HERE’S WHY YOU SHOULD (OR SHOULD NOT) REFINANCE YOUR MORTGAGE

VA Streamlines Refinance Eligibility Guidelines

Before applying for a VA streamlined refinance, make sure you meet all of the qualifying criteria.

Your current lender can help you confirm that your mortgage allows for a streamlined VA refinance.

Costs VA IRRRL

Like all refinances, IRRRL loans come with closing costs. On average, lenders charge between 2% and 5% of the total loan amount. For example, if you are refinancing a $200,000 loan, your closing costs could be between $4,000 and $10,000. Lenders usually allow you to roll the fees into the loan total, but you’ll accrue interest on them with the rest of your loan.

In addition to the standard closing costs associated with a mortgage refinance, you will incur a financing fee of 0.5%. The purpose of the finance charge is to help the VA continue to provide VA loans to other borrowers. Some borrowers may qualify for a finance charge waiver. For example, you can request a waiver if you have a service-related disability or have been awarded the Purple Heart.

How to apply for VA IRRRL

When you’re ready to apply for your refinance, here’s what you need to do:

  1. Choose a lender. You can work with your current lender or compare VA refinance rates from different lenders. Consider comparing rates from at least three VA lenders to improve your chances of getting the best rate.
  2. Submit your application. Once you have chosen a lender, you submit your application. Although you don’t technically need a COE to get a VA streamlined refinance, you still need to show it to your lender to prove you’ve used your right. If you do not have a copy of your COE, you or your lender can obtain this document online from the VA Home Loan program portal.
  3. Close your loan. Follow your lender’s closing process, including signing documents and paying closing costs. Your lender may allow you to include closing costs in the loan amount.

WHEN IS THE RIGHT TIME TO REFINANCE MY MORTGAGE?

Alternatives to VA Streamlined Refinancing

While there are many advantages to a VA streamlined refinance, not all borrowers are eligible and it may not be the ideal solution for your needs. Here are some other options to consider:

  • VA collection refinancing – Unlike a VA IRRRL, you can receive cash back on the equity in your home with a VA refinance loan. You will need to prove that you qualify for a VA loan (proof of eligible military service) and you will need to provide income and credit history for approval. This type of VA refinance allows you to refinance a conventional loan into a VA secured loan.
  • Conventional refinancing — You may also consider replacing your existing VA loan with a conventional loan. You’ll need to have a good credit score and a good payment history to qualify, but you won’t need to prove your military service.
  • Refinance with an FHA loan — Conventional loans generally have stricter credit score requirements. If your finances aren’t ideal, refinancing into an FHA loan might be a better option. If you already have an FHA loan, you may qualify for a FHA streamline refinancing. Like a VA IRRRL, an FHA Streamline Refinance does not require a credit check or appraisal.
  • Home equity loan — If you need to access the equity in your home, a VA IRRRL will not help you. But you might qualify for a home equity loan, which could provide you with extra funds to cover a major expense. Remember that a home equity loan is considered a second mortgage — meaning you’ll be making payments on it in addition to your current VA loan.

Credible allows you compare mortgage refinance rates for conventional refinancing quickly and easily.