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VA Interest Rate Reduction Loans (IRRL)

Service Members and VA Interest Rate Reduction Loans (IRRL)

If you are someone looking for mortgage options, there are a variety you can choose from, depending on your profession. USDA loans, FHA, and many others exist to provide options to those who need it. This includes veterans who have honorably served our country. The VA (or Division of Veterans Affairs) provides extra benefits for service members looking to buy a home. It is only fair we make it easier for men and women in the armed services to achieve their goal of one day owning their own home, which is the goal of a reputable mortgage lenders in Kansas City.

Any homeowner who has owned their home for a long time can re-finance their loan to a better rate, making monthly payments easier on the wallet. The VA offers one such solution for long-time homeowners called the Rate of Interest Reduction Refinance Financing (or IRRRL). This type of refinancing is also called VA Streamlines Refinance. The VA adopted this policy in the 1980s to help offer service members the options of getting a new loan down the line that better fits their financial goals.

The process for applying for a typical refinance is essentially the same as getting your first mortgage. You will need to pass a credit check, have qualifying income, undergo appraisal, and meet all underwriting requirements. The VA streamlines this process to make it easier for service members with a good track record of on-time payments. Here are several steps you will have to take to undergo the IRRRL process:

Step One: Filling Out an Application

The wonderful thing about applying for an IRRRL is that the process of applying for the refinance is typically much easier than the traditional way of refinancing your loan. The good news here is that the typical requirements do not apply. Your ability to refinance is not based upon your income, your debit, or even the value of your home. Instead, there are other factors that weigh heavier in the overall determination, such as:

  • Is your current VA loan at least several months old?
  • Do you have proof you have lived primarily at the home in question?
  • Have you made perfect on-time payments for up to a year?
  • A verification you have the funds to pay for closing costs with cash.

Step Two: Take Care of the Current Loan

If you are looking to refinance your current loan, you might be wondering what it means for that loan. Does it just disappear? Will you have to pay anything on it to get the refinancing options? This, too, is streamlined for your benefit. Essentially, refinancing a mortgage is like getting a whole new one at a better rate, closing out the old mortgage, and paying it off completely. By applying for a refinance, you are asking to have the old loan paid off.

You will need to get a final payoff amount from the previous loan company, which usually includes the amount left on the loan and any due interest. There might be some fees left to pay as well. It’s better to close the loan at the beginning of the month to avoid having additional interest added to what you owe. The old loan company will receive their payoff and the loan is closed. This is an important step before you can move on to the new loan.

Step 3: Payments Expected for New Loan

Once the old loan is closed, it is time to get settled into the new one. There are closing costs involved in getting the new IRRRL loan, which includes:

  • The new lender might require an appraisal and credit report.
  • Any mortgage processing fees associated with getting a new mortgage.
  • Remaining monthly interest.
  • Title fees.
  • An advance payment towards any homeowner’s insurance and property taxes due.

These fees can often be added to the overall total of the mortgage, so you are not expected to have to pay cash upon signing. You might even get an offer from the company to wave certain closing costs if you are willing to slightly increase the interest rate. Each company might have a different way of doing it but be prepared for each of these options and choose the one that best works for you.

Are There Any Disadvantages to an IRRRL?

As with anything you end up signing a contract for, you should always do your research beforehand. There might be other types of refinancing that work better to meet your needs. Getting an IRRRL might be simpler than other loans, but it is not always the best for every situation. Because this loan does help reduce interest rates, monthly payments, and more, the pros do often outweigh the cons for most service members who secure a VA loan.

Here are several disadvantages:

  • You may not be accepted if you already have a lower interest rate.
  • You may need to pay thousands more in closing costs to qualify.
  • Depending on the new terms you receive, the payoff day might be pushed back.
  • You will not be able to take out cash to make home improvements like you would with other options.
  • Because you get greater flexibility financially, the terms are stricter.
  • You will not be able to increase your monthly or interest payments.

For these reasons, you may find that a lower rate does not work for you. One way around that is switching from a 30-year loan to 15 years. That will increase the payments significantly to pay the loan off quicker while receiving the same IRRRL benefits. The decision is up to what you and what you can comfortably pay. Take a good look at your future as well. Do you plan on staying in the home or are you looking to upgrade or downgrade in a few years? Are you able to afford the closing costs or is that money better spent elsewhere?

To learn more about this process and to see whether you qualify, be sure to visit Metropolitan Mortgage Corporation online.

Rick Woodruff
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