The VA IRRRL refinance program is a great way for California VA loan borrowers to take advantage of low interest rates. An IRRRL, or Interest Rate Reduction Refinance Loan is also sometimes called the VA Streamline Refinance. The reason it is called a “Streamline” refinance is because of how easy the loan process is. There is probably not another refinance that is easier to close that this program.
IRRRL – The Easiest Refinance You’ll Ever Do
Going through the IRRRL loan process is nothing like going through a purchase loan process. With the IRRRL there is no appraisal required. There is no termite inspection needed, and the qualifying couldn’t be easier. There is no income documentation needed since the debt to income ratios and residual income are not calculated for this program. Also, no bank statements are needed. So what is needed? In most cases a credit report will be run in order to get the California VA borrowers FICO scores and the mortgage rating. The VA borrower must be current on their loan in order to take advantage of the program. Also, many lenders require that at least 6 payments have been made in prior to getting approved, although there are some lenders who will close with less seasoning. The FICO score will have some effect on the interest rate and pricing of the new loan, so it’s always nice to have the highest FICO score possible.
Who is Eligible for an IRRRL?
In order to qualify for an IRRRL the borrower must already have a VA loan. The VA Streamline refinance is strictly for VA to VA refinances. Unfortunately the IRRRL does not work for Cal Vet Loan borrowers. Cal Vet does not have a refinance program, but it is possible to do a standard VA refinance from a Cal Vet loan into a VA loan. A standard VA refinance does require full qualifying, with income documentation, bank statements, appraisal, termite inspection (for California single family homes), and a bigger VA Funding Fee than what occurs with the IRRRL program. Still, it can be worth it for a Cal Vet borrower if their interest rate is above the current VA interest rate.
When Does it Make Sense to Refinance using the IRRRL Program?
Just because you’re receiving mailers offering an interest rate lower than your current rate is doesn’t mean it automatically makes sense to refinance. It’s not unusual for companies that market for IRRRL’s to advertise an extremely low interest rate that comes with big closing costs that will be added to the new loan. A VA borrower should be careful to make sure they will break even with the refinance in a reasonable time period based on several factors, including the time they plan to remain in the home and their long and short term financial goals.The California VA lender should be able to prepare a Side by Side Total Cost Analysis for the VA borrower that will compare several IRRRL scenarios to the borrowers current loan. The Side by Side Analysis should make it easy for the borrower to see what the new loan amount will be, what the monthly savings will be, and how much the total costs for each loan scenario will be. Quite often the best option is a No Closing Cost VA IRRRL. With a No Closing Cost IRRRL the lender will offer an interest rate that allows for a lender credit, which is used to offset the closing costs. This helps to speed us the Breakeven Analysis, sometimes to the point where the Breakeven occurs immediately upon closing. VA borrowers who don’t closely review the numbers to make sure they are choosing the right IRRRL scenario (if refinancing even makes sense) could end up paying thousands extra in closing costs or mortgage interest over the life of their loan.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.