If you’re an American veteran with an existing VA loan, you may be able to take advantage of lower interest rates and reduced monthly payments through a handy program officially called the Interest Rate Reduction Refinance Loan (IRRRL). A more common (and far more catchy) name is “VA streamline.”
VA Streamline: What You Need to Know About this Beneficial Program
What is VA Streamline?
Also called a VA-to-VA loan, this program lets you replace your current loan with another mortgage under different terms, including potentially lower interest rates. Refinancing is a common way to improve a loan and enjoy better rates, but this one is unique. It’s unique because it eliminates many of the time-consuming (and potentially costly) steps required in a refinance.
It is easier and faster, and doesn’t require a large amount of documentation, appraisals, and other step you usually have with other forms of refinancing.
It’s only available for refinancing from a VA loan into a new VA loan, so even if you are a qualifying veteran, but your current mortgage is, say, an FHA loan, this option is not available. (This is why it’s often called “VA-to-VA refinancing.”)
When you use this financing, you can essentially bypass many of the steps that were completed during the original VA-loan application. No paystubs or W2s are required, and no bank statements will be requested by the lender.
This program also lets you skip the home appraisal, and there is no loan-to-value limitation on the financing. Even homes that are “underwater” are eligible for these loans.
When finalizing the loan, a VA streamline brings lower funding fees, and closing costs can be wrapped into the new loan.
Benefits of VA Streamline
Speed and affordability are the two benefits of this refinancing option. When you use a VA streamline, you can complete the refinance much faster, you’ll have fewer steps to take, and you can likely complete the process with less upfront cash.
One of the top benefits for a VA streamline is the chance to eliminate the home appraisal. Because you have a VA loan, your home has likely been appraised in the recent past, so a thorough appraisal is not needed. Home appraisals can take weeks, even months to complete, especially in busy real estate markets where appraisers are just trying to keep up with demand. You also won’t have to spend time and energy compiling documents like paystubs and W2s, which means a quick turnaround in many cases.
The cost of a VA streamline is lower as well. These loans have a couple of features that reduce the overall price. As we have mentioned, you can skip an appraisal, which can cost hundreds of dollars. The funding fee is lower than the funding fees for original VA loans, and the closing costs can be rolled into the final loan. All of these factors result in a lower upfront cost when using this refinancing program.
So not only are you getting a refinanced loan faster than normal, you are doing so at a cost that is much more affordable.
Requirements for a VA Streamline
Qualifying for a VA streamline refinance is fairly easy; if you qualified for a VA loan in the past, and your current loan is in good standing, there’s a strong chance you’ll be approved for this program.
Mostly, you need to have made on-time payments throughout the life of your VA loan. There can be no more than one payment that was more than 30 days late over the past 12 months, so if you have missed multiple payments in the recent past, it may be best to wait. For example, if you had a few missed payments, but that last was seven months ago, you can wait five months and get approval for a loan at that time. (Assuming you have no more missed payments.)
Your current VA loan cannot be brand new. However, the time requirement is fairly short. To qualify, it will need to be about seven months since you made the first payment on your loan. Note that it’s since the first payment, not since the loan was written. This is important, as it could have been months between the loan approval and the first payment.
To qualify for refinancing, you also need to demonstrate a financial benefit. Basically, refinancing your loan must improve your financial situation by lowering your payments. There are even specific requirements for a drop in interest rate to refinance. In order to refinance into a fixed-rate loan, there needs to be at least a 0.5% drop in total interest rate compared to your previous loan.
If you are moving into an adjustable-rate loan, the requirements are different. In this case, you have to have at least a 2% drop in total interest rate, and this drop cannot come only from discount points.
To complete the application, your lender will have to complete a form stating the interest rate on the new loan compared to the old interest rate. There will also need to be a calculation on how long it will take the refinance to pay for itself. If the refinance costs, say, $2,000, and you are saving $200 a month, then the refinancing will pay for itself in 10 months; after that, everything is a financial gain. This timetable must be described by the lender when making the application.
If you are refinancing into a shorter term, your payments will rise. This is okay, as long as there is a significant drop in interest rates.
Excellent Service for Your VA Loan
If you have a VA loan and want to learn more about VA Streamline refinancing, contact our staff today. We’ll make sure you have the right information so you can make the best decision. Whether or not your original VA loan was underwritten by our team, we’ll be proud to deliver the service and dedication you deserve!
