Inside the Interest Rate Reduction Refinance Loan
It seems the government has an acronym for most everything. In fact, I can’t think of a government agency or office that doesn’t have its own moniker from POTUS all the way down to the DMV. And the VA (there’s another one) has its very own acronym, the IRRRL which stands for the Interest Rate Reduction Refinance Loan. Most commonly referred to as the VA Streamline, the IRRRL offers those who qualify a way to refinance their existing VA home loan with less documentation and much less time compared to other loan programs in the market today. What are the features of the VA streamline and what are the qualifications for the loan?
The major advantage when refinancing with a VA streamline is the reduced documentation needed in order to approve the mortgage. What are some of the items no longer needed for a VA streamline?
There is no minimum credit score required for a VA streamline loan. The lender will however verify that there are no payments in the last 12 months that are more than 30 days past the due date. A lender can pull a credit report for this verification but does not consider credit scores.
The VA streamline refinance program waives the requirement for a new property appraisal, saving the borrower both time as well as money.
Verification of income for all borrowers on the VA streamline is not required. That means unlike the original VA loan when pay check stubs, W2 forms and tax returns were provided, the IRRRL requires no income verification whatsoever.
Because there is no need to verify income nor calculate debt ratios, as long the payment is reduced with the IRRRL or the borrower is switching from and adjustable rate mortgage, employment history is not reviewed.
VA to VA
The initial requirement for the IRRRL, or VA streamline requires that the new VA loan must replace an existing VA mortgage. The IRRRL is indeed a refinance and a refinance completely replaces an existing loan with a brand new mortgage.
When a VA loan is originally issued, it’s for a primary residence only. VA mortgage loans are not allowed to be used to finance a duplex or any rental property. The VA home loan is hands-down the best no and low down payment program on the market for those who qualify and the benefit is designed to help veterans buy a home to occupy and not become a real estate investor.
However, a VA streamline mortgage does not require the veteran to currently occupy the property but only provide evidence that the subject properly was in fact previously occupied as a primary residence. This verification is relatively easy to provide, and can be evidenced by providing a copy of the original settlement statement or initial VA loan document.
Lower Rate Threshold
While any conventional loan or standard refinance does not require the interest rate to be at a particular level during a refinance, the VA streamline does require the new principal and interest payment to be lower than the existing one.
However, when a borrower has an adjustable rate mortgage or a hybrid, the payment reduction is waived. Moving from a potential volatile adjustable rate loan to the stability offered by a fixed rate mortgage is allowed.
The new VA loan refinanced with an IRRRL does not allow any cash out to the borrower. The newly refinanced loan can include the existing VA mortgage, interest charges, allowable closing costs and the VA funding fee only.
Certificate of Eligibility
The VA streamline does not require the borrower to obtain an updated certificate of eligibility from the VA.
Additional Lender Requirements (Overlays)
While VA lenders are required to underwrite and process VA streamline loans using established VA guidelines, lenders may also impose their own internal lending guideline. As long as the lender employs the guideline across the board and does not selectively apply the additional rule to a particular borrower which could be an indication of discrimination, a lender has the right to add other qualifications. These additional qualifications are called “overlays.”
For example, even though the VA does require an appraisal for a VA streamline approval, a VA lender may include an updated appraisal as part of their approval process, especially in areas where property values have fallen significantly as well as to determine the property being refinanced is in good condition. A lender may also verify employment or other such additional guideline before issuing an approval for a VA streamline loan.
The VA IRRRL program is provides the easiest method to refinance into today’s lower rates when compared to any other loan program in the market. As long as the borrower meets the VA and lender requirements for the streamline, a lower interest rate and more stable mortgage program is just around the corner.