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VA Loan Streamline Refinance Guide – IRRRL

2 how much va loan can i affordIntroduction:

A home loan is gradually becoming a basic necessity.

Only a few decades ago, getting a loan was a herculean task.

But slowly and surely, various banks, private finance corporations and other approved lenders are changing this scenario. Today, anyone with a steady income can opt for a home loan.

It not only solves the problem of acquiring cash for the down payment of a property but in the long run also doubles up as a way of saving.

In the US, the federal government provides people who have served in the military for a stipulated period of time the benefit to acquire a guaranteed home loan called the VA Loan.


What is VA Loan?

A home loan guaranteed by the government to a veteran is called a VA home loan. The loan can be approved only by a lender who is himself approved by the Department of Veteran Affairs. The VA Loan is guaranteed only by the government and not by any private HFCs (Housing Finance Companies).

Types of VA loans:

Name with brief description.

1.Normal VA loan

This is the most basic of the VA loans. It is useful when the veteran wants to purchase a home.

2.VA Streamline Refinancing Loan

This enables the previously approved VA loan to be refinanced without additional costs. It reduces the interest rate on the VA loan.

3.VA Cash Out Refinance Loan

This allows the veteran to withdraw any cash that exceeds the payment of his original VA loan. The limit is up to a maximum of 95%.

4. the regular ARM loan

This allows the veteran to convert his conventional loan into a VA enabled loan and gives him safety from any fluctuating interest rates throughout the life of the mortgage.

 

Why is the VA loan popular?

  • The VA loan is an extremely popular scheme in the US for the reason that it purports to serve. Owning a home is ultimately on every person’s mind.
  • The military service in the US has become attractive due to the introduction of this scheme. The VA loan is applicable only to veterans who have actually served in the military services.

Features of a VA loan:

  1. The veteran need not pay the approved lender any down money. In order to secure any other home loan, the lender may have to show his income and credit worthiness and only when the lender is satisfied that the borrower will not default, is the loan finally approved. But in a VA loan, any income and credit can secure the veteran the loan.
  2. The loans offer flexible payment options. Something that is not available in any other conventional home loans.
  3. VA loans have no Private Mortgage Insurance on them.
  4. The Federal approved VA loans attract competitive mortgage and very low interest rates.

What is the eligibility for securing a VA home loan?

There are certain criteria that the veteran has to fulfill in order to qualify for a VA loan. They are:

  • The veteran must have served a minimum of 181 days during peacetime and around 90 days when there is an ongoing war.
  • The veteran may have given 6 years of his service as Reserve and National Guards.
  • The better half of a veteran who has laid down his life serving his country will also be eligible for the loan. The pre requisite is clear that the death must have taken place when the veteran was in the line of duty.

What is VA Streamline Refinance?

The federal government is famed for taking initiatives to benefit a certain group or class of people. The idea of providing benefits to the society by individually appreciating their difficulties and challenges is well appreciated by the American public. It helps them to tackle one problem at a time and also increases the popularity of the government.

One such popular program is designed exclusively for veterans to help them acquire a home loan.

How do the VA loans work?2 va streamline refinance

The Veteran Affairs does not issue any home loans but what it does instead is that it provides a guaranty on the qualified home loans. The agency only guarantees up to a maximum of one quarter the value of the home loan amount. The guaranty itself is enough to pump up the confidence levels of the veterans to pay for their own homes.

 

The features of a VA streamline refi are:

  • The VA streamline refinance is called by various names and the most common among them are the VA streamline Refi, the Veteran Affairs loan and the interest Rate Reduction Refinance Loan or simply called the IRRRL. Throughout the article we shall be using all these terms interchangeably.
  • The program allows for refinancing of the Veteran’s current mortgage rate to a lesser rate than what he may be paying at the point of time before he decides to go in for the refinance loan.
  • The loan is extremely simple and hassle free and the formalities can be completed by the approved lender himself. This is one of the reasons that a lot of people prefer to refinance their home loan. If there were too many formalities or red tape in the department, there would not be half as many people who would have opted for this brilliant scheme.
  • The process does not consume much time and the conversion and refinancing can happen is a very short period of one month itself.
  • There is also no more paperwork involved. If the veteran has already approved a VA home loan, then the refinancing of that loan will not require any more paper submissions. Thus the refinance is not treated like enrolling for a new program but merely upgrading to a better program. The IRRRL is really beneficial for all the veterans.
  • Say for example, there is a balance payable or any outstanding amount after the refi, this can be rolled over into the cost of the VA loan repayment.

The terms and conditions for getting IRRRL approved:

 In order to qualify for VA loan to be upgraded to IRRRL, the following terms and conditions must be fulfilled:

  1. The veteran must be current on the mortgage and should not have defaulted payment more than once (that is for one month) in the whole of the previous year.
  2. After refinancing the VA loan, the new periodic monthly installment must turn out to be lower than what it was originally in the unfinanced VA home loan.
  3. There must absolutely no cash received or any cash receivable from the IRRRL.
  4. There must be a certification that must be provided by the veteran that the house for which he intends to refinance his VA loan is being occupied or is already in occupation.
  5. Lastly, the veteran must prove with valid documentation that the house for which the VA refinance is requested has already used the eligibility of the VA loan benefits.

 

Thus it is very clear that a VA streamline refinance loan or VA refi can only be claimed by the veteran on his existing VA loan and after proving that the VA loan was indeed used for the same house that the refinance is requested for.

What is a VA Cash Out Refinancing loan?

This is a secondary type of Streamline Refinancing loan. The features of the Cash Out streamlining Refinancing loan are the following:

  1. This secondary form of VA refinance loan allows the veterans to refinance his conventional as well as VA loans by reducing the interest rate on either of them.
  2. It also allows the lender to refinance the entire 100% of the value of the property that is the full value of the home.
  3. The refinance is available in various forms like the USDA, FHA, etc.
  4. The veteran needs to prove to the lender that the home for which he is seeking a refinance is the same home that is in occupation or will be used by him for his place of dwelling. Proper documentation has to be given to the lender in order to satisfy this prerequisite.

 

It has been noticed that the Cash out Streamline Refinance loan is very popular then the Basic Refinance loan type because of the following reasons:

  • The Cash out refinance allows refinancing of other conventional loans also.
  • The period of payment is much longer than the IRRRL and the interest rate per installment is also much lower than it.

Even though there is no fixed time for the veteran to own the house, he must prove to the lender that he has sufficient equity to pay back his loan amount.

How much VA loan can I get?

While a VA loan has absolutely no slab limit. The VA Streamline refinancing loan or the IRRRL is limited only to the amount of the VA loan acquired by him and nothing more.

Are VA loans assumable?

The term “assumable” means that someone else apart from the person who originally got the loan approved is ready to take the burden of the debt on himself. Now why will someone do that? I can hear you ask.

When the mortgaged property is sold to another even before the loan amount is fully paid, the buyer of the property will and can take the responsibility of paying the rest of the mortgage. This is especially beneficial to the buyer especially when the interest rate on a new loan is much higher than the existing loan’s rates.

The buyer will need to free the seller from all liability in writing otherwise it may affect the seller’s credibility if the buyer defaults on the payment of the loan. Thankfully, a VA loan is completely assumable as compared to a conventional loan.

2 are va loans goodDo VA loans require PMI?

PMI is the short for private mortgage insurance. Having no PMI is a signature benefit of the VA loan and it makes it so attractive for people that they do not even want to think of a conventional home loan.

Having no PMI is the reason why the veterans can save wads of currencies upfront. It is all based on a very simple logic. When a person initially starts scouting for a home loan the lender of a conventional loan will require him to have at least 20 percent of the value if the house inequity. Given the rise in the prices of real estate today, the harsh reality is that almost nine out of ten people cannot afford to even pay a down payment of the first 20% of the value of the home.

The lender will expect the home loan seeker to get a PMI which can drain precious cash out of his kitty. But a VA loan has no PMI and it does save thousands of dollars during the initial stages of the mortgage.

How much VA loan can I afford?

Well, if you are questioning this yourself, the answer can very well be the VA mortgage calculator. This application Can be used on all smart phones, tablet or laptop PC running on android systems.

The app needs you to fill in the total value of the home that you intend to acquire a loan for. The period of the loan and the rate of interest at the time of acquiring the loan have to be entered. There are other compulsory fields which will ask whether you have already availed any VA loan in the past and also the property taxes expected on the intended property.

The calculator will generate the result of the mortgage that you will be eligible for and also the monthly and the annual payment details. The calculations are done on the basis of the ratio of the total monthly debt payment to the gross monthly income also called the debt ratio.

How many VA loans can you get?

VA loans are re usable. That is to say that every time you pay off your loan in time and complete your financial commitments you can again become eligible for another VA loan. In case, the veteran has a VA loan running or has lost the loan to foreclosure, it is not the end of the road for him. There are provisions in the VA loan portfolio where he may be eligible again to request a new VA loan.

How much VA loan do I qualify for?

How much a veteran qualifies for is expressed in a formula called the “debt ratio”. The debt ratio is expressed as a percentage and it is derived by dividing the debt obligation itself by the veteran’s monthly income. The maximum VA debt ratio limit presently is pegged at 41%. Anything below this number qualifies for the loan.

Why should you compare refinance costs?

It is a prudent habit to initially compare the refinance costs in order to ascertain whether refinancing the loan is beneficial in your case at all. Even a slight drop in the interest rate of your VA loan may warrant you to go in for refinancing. The result may be that you save at least a few thousand dollar on refinancing your VA loan.

Are VA loans good?

This is a leading question. Yes, VA home loans are extremely good! If the statistics can prove it, then till date, the program has helped 22 million military men and women in service become proud homeowners since the program was started as early as in the 1940s.

[PDF]VA Guaranteed Home Loans Factsheet

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