Taking out Veterans Affairs (VA) loan makes it possible for those who otherwise would not be able to buy a home to do so. VA loans are, generally, affordable and free qualified borrowers from some of the more harsh terms banks may impose when reviewing mortgage applications.
VA loans are not perfect. The rates on an approved VA loan may end up being a bit more than what the borrower turns out to be comfortable with. A solution exists for those who may be struggling with repaying their loan: the Interest Rate Reduction Refinancing Loan (IRRRL) allows for accessing a lower rate of interest.
Rules, Requirements, and Statutes
The most obvious rule in place is the loan must be through the VA. Anyone holding a loan through the government’s FHA program or one through a bank or other lender is not able to apply for this specific category of refinancing. The IRRL loan is strictly for those who hold VA loans.
The loan may also not be combined with a second mortgage. The reasons why are not clear, but this is an ironclad rule currently in place. Another strict rule bars the receipt of cash proceeds from the refinancing arrangement.
What this means is the loan cannot go beyond what is left on the mortgage and tap into the equity. So, borrowing an additional $10,000 to refinance credit card debt with this type of refinancing agreement. A traditional refinancing loan plan could tap into equity. The IRRRL program is rather targeted in its approach and purpose. Those looking for expansive uses of refinancing agreements need to look elsewhere. The problem with looking elsewhere, however, would be the obvious fact a loan outside of the VA system is interest rates are surely going to be higher.
Interestingly, the VA won’t require any appraisals or credit checks when applying for refinancing. The goal of the IRRRL is to be helpful to veterans trying to own a home in an affordable manner. Poor credit or issues with the property do not have an impact on the processing of a VA-based loan. The loans, however, are not issued directly by the VA. The VA works in partnership with approved lending services. These services may require appraisals and credit checks.
Positives Associated with the IRRRL Program
Borrowers do not like to go through a number of hassles with the application process. People looking to refinance a loan may already be under significant financial stress. They do not want to deal with or worry about other issues associated with straightening financial woes out.
The VA’s IRRRL program does try to make things as simple as possible for those wishing to cut down on their loan costs. The absence of any requirements to reapply for a Certificate of Eligibility (CoE) is an example of how things are streamlined. Not forcing applicants to jump through hoops in order to refinance a loan is definitely going to be appreciated.
The lack of a requirement to pay upfront fees may be even more appreciated. While not everyone seeking to refinance a mortgage is struggling with financial issues, many are. Being required to pay additional fees is not a helpful thing to those whose funds and budgets may already be strained. Now, escaping the fees is not an option. Paying the costs associated with processing the loan is inevitable. The costs are weaved into the balance of the new loan making them easier to deal with.
IRRRL Loan Considerations
First, try to get at least a 1% savings in the interest rate with the new loan. By shaving off at least one point, big savings might be procured. There is no benefit to going through the work of refinancing a loan and not saving much on the interest.
Overall, the IRRRL program could prove to be a massive help to those in need of a new loan. Anyone hoping to save even more money on a VA loan now has a means of doing so.