If you are thinking about applying for the Veteran Administration’s Interest Rate Reduction Refinancing Loan program, you are not alone. Many military professionals and veterans take full advantage of the VA loan program when purchasing a home, and the IRRRL allows you the opportunity to refinance to a lower interest rate, a more advantageous loan term or both. However, this loan program is only designed to replace current VA loans. If your first lien is not a VA loan, this is not the right program for you even if you are a military professional or a veteran. A key benefit associated with the IRRRL program through the VA is that there no closing costs, and this may have been one of the key features that attracted you to it. However, there are some caveats that you should be aware of when preparing to apply for this refinance loan program.
No Typical Refinance Loan Costs Included
Current VA mortgage holders love the IRRRL program because they do not have to pay for an appraisal when refinancing their loan under this program. An appraisal may take a week or two to complete, and it may cost several hundred dollars or more. By eliminating the need for an appraisal when refinancing your home mortgage, you can save both time and money. In addition, there is no credit check requirement for the IRRRL loan program. This means that you do not have to pay for an appraisal or a credit report through this program. These are the two most common closing fees associated with a refinance loan, and they are eliminated through this affordable loan program.
How the VA Loan Funding Fee Is Paid
There is, however a VA loan funding fee that you will need to pay at closing. This fee may be waived in some cases, and its amount may alter based on a wide range of circumstances. Many applicants will roll this fee into their loan amount so that they do not have to come out of pocket to pay for any fees. However, if your goal is to pay your loan balance off as quickly as possible, it may be better to plan to pay this fee out of pocket at closing. You should discuss with your lender how you plan to pay for this fee so that you are not suprised by an unexpected closing fee.
What You Need to Know About Lender or Broker Fees
While the loan itself does not have any fees that you will need pay, your broker or lender may have a few fees of their own. Generally, lenders and brokers charge fees related to their time and effort working on the loan. These fees may be a few hundred dollars or much more in some cases. Any lender can complete the IRRRL loan application for you, and this means that you can easily shop around to find the best lender to work with. While it is important to compare fees before selecting a lender, you also need to find a lender who is familiar with VA loans and who has a great reputation in your local community.
The Ability to Purchase Discount Points
As with other types of mortgage loans, you can also pay discount points on the loan. A discount point is usually paid to buy a lower interest rate. This can have a beneficial impact on your loan payment each month and can help you to save money on interest charges. The VA allows you to roll up to two discount points into the loan amount. If you want to pay more than two discount points, you will need to pay the additional money out of your own pocket.
You can see that the advertising you may have seen that states that IRRRL loans have no closing costs is true. However, you can also see that there are clear instances when you may need or prefer to pay for at least some costs out of your own pocket. If you are thinking about refinancing your current VA loan under this program, it is wise to speak with several different brokers or banks to learn more about your options and to compare closing costs.