If you hold a VA loan and you’ve been avoiding a refinance out of fear of paperwork and hassle, think again. The VA offers a Streamline Refinance program to borrowers in good standing who originally financed their home purchase with a VA loan. With VA Streamline Refinance, you won’t need to jump through all of the hoops required for conventional refinancing. Sound good? Here’s how it works:
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Most people who refinance do so because they want to lower their monthly mortgage payments. They may have heard that interest rates have dropped since they secured their mortgage and want to take advantage of the chance to lock in lower rates. Or, they may be in a high-interest adjustable-rate mortgage and want to switch to a fixed-rate mortgage. Less commonly, people may refinance from a 30-year to a 15-year mortgage. These folks will pay less in interest over the course of the loan, but their monthly payments will increase. This is only a good strategy if you’re sure you can afford a hike in your housing costs.
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VA Streamline Refinance
The VA Streamline Refinance is also known as an Interest Rate Reduction Refinance Loan (IRRRL). It’s streamlined because it doesn’t require an appraisal or credit underwriting. That’s the good news. The bad news is that you can’t do a cash-out refinance, where you take money out of your home equity.
Still, an IRRRL should save you on your monthly payments by lowering your mortgage interest rate. The exception to this rule is if you’re using a VA Streamline Refinance to switch from an adjustable-rate mortgage to a fixed-rate mortgage. In that case, your monthly payments could increase, but you’ll have the comfort of knowing that your interest rate is set for the life of the loan.
If you don’t have the cash on hand to pay refinance closing costs, you can roll your closing costs into your loan. This is often labeled as a “no closing costs” arrangement, but keep in mind that rolling closing costs into your refinance mortgage will increase the amount of interest you pay over the life of the loan.
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You may have heard that you can refinance from a conventional loan to a VA loan. This is true, but it doesn’t apply to the VA Streamline Refinance. To take advantage of the IRRRL program, you must already hold a VA loan and this is known as a VA-to-VA refinance.
In addition to holding a VA loan, you must be in good standing on that loan, with no more than one 30-day late payment in the last year. Unless you’re refinancing from an adjustable-rate mortgage to a fixed-rate mortgage, you must prove that the IRRRL will lower your interest rate. You won’t need to obtain another Certificate of Eligibility to do a VA refinance, but you will need to pay another VA funding fee.
How to Get One
You’re not required to work with the same lender who got you your original VA loan when you purchased your home. In fact, if VA Streamline Refinance is right for you, it’s a good idea to shop around to get the best deal you can. You’ll find that different lenders offer different interest rates and fees.
If you already have a VA loan and you’d like to refinance it, the VA Streamline Refinance can be a dream come true. You’ll lower your interest rate with no income verification, appraisal or credit requirements. Even underwater borrowers can take advantage of an IRRRL. It’s a quick, simple way to cut your housing costs.
If a refinance is in your future, it’s important to come up with a plan for how you’ll use the money you save. What will you do with the extra money in your budget? Pay off student loans? Save for retirement? The more detailed your plan, the more likely you are to put that money to good use, rather than letting it blend with the rest of your spending.
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