If you have a VA loan, you do not have to keep the same loan for its entirety. If rates decrease, you can refinance. You can even take a different type of loan if you want. However, the VA IRRRL program offers a multitude of benefits that make most veterans stick with the VA program. The VA Interest Rate Reduction Refinance Loan allows you to refinance with very little verification. As long as you refinance to reduce your interest rate and save money each month, you have very little to verify. If you want to make the most of the program, learn how to secure the best VA IRRRL rates available.
Clean up Your Mortgage History
Because the VA IRRRL requires very little verification, a lot of emphasis is put on your mortgage history. You cannot have any late mortgage payments for the last 12 months. What if, however, you have a late payment 14 months ago? Will you get approved? Chances are that you will because the VA stresses the importance of the last 12 months. However, it is up to the individual lender to decide what interest rate you receive. If you have a late payment shortly prior to the 12-month history, they may consider you a higher risk and increase your interest rate. Stay focused on making your payments on time so this does not happen to you.
Stabilize Your Employment
It goes without saying; a stable job helps you secure a lower interest rate. Lenders look at borrowers who hop from job to job as high risk. What is to say that you will not become unemployed in the near future? If you have the same job for many years, there is more stability in your income and your life as a whole. Stable employment usually means stable income and fewer inconsistencies in your payment patterns. Try keeping the same job for as long as you can before you refinance. If you just can’t keep the same job, try staying in the same industry. If you completely change industries or job types, make sure you have training or schooling to back it up. Lenders use this as a compensating factor when they consider how risky your employment makes your loan file.
Pay Your Own Closing Costs
The VA IRRRL program does not require you to pay your closing costs at the closing. You have the right to roll them into your loan. However, this increases your LTV. Depending on how long ago you originated your VA loan, you may be close to or even over 100%. This is very risky for lenders. If, on the other hand, you pay your own closing costs, you lower your LTV and your risk. Lenders will likely reward you for this by providing you with a slightly lower interest rate. You might not see a tremendous difference, but even 0.5% can save you a chunk of change each month. Keep in mind, though, you must verify the assets you use to pay the closing costs. This way the lender knows the funds are yours and not borrowed from a creditor or even another person.
Maximize the Benefits of the Loan
Show a lender how refinancing would benefit you. If you save money each month, how much will you save? What will this do to your bottom line? Maybe it increases your disposable income. The VA strongly believes in having adequate disposable income. If you refinance from an ARM to a fixed rate, you can show the lender the stability you receive with the fixed rate loan. There is no more uncertainty and if you can comfortably afford the fixed rate payment, you lower the risk of default. If you lower your term, you can show the lender that you will borrow their money for a shorter amount of time. This is a great benefit to the lender, which they usually reward with a lower interest rate.
Shop Around for the Best VA IRRRL Rates
Don’t think you have to stick with your current lender to secure the best VA IRRRL rates. In fact, this is probably the worst way to do it. Instead, you should shop around. Every lender has a different threshold for risk. Plus, they each have different ideas on what they need to make on a loan. The VA IRRRL program is good with any VA lender you choose. You don’t have to use your original lender because they have your information. As long as you can provide your loan number, the new lender can look up anything they need to for your file.
Every time you apply with a new lender, they must provide you with a Loan Estimate within 3 business days. Take your time reviewing this document. Look closely at the interest rate, APR, and closing fees. Upon first glance, it might look like one lender will give you a much lower interest rate. However, if you look at the fees, they may charge you discount or origination points. Another lender who does not quote you such a low rate may not charge those fees. It is up to you how you want to proceed. The VA requires that your payment decrease in order for you to use the VA IRRRL program. Just how much it must decrease to make it worth it is up to you. Consider how long you will stay in the home to determine if you should pay the fees for the lower rate or just pay the higher rate until you move.
Finding the best VA IRRRL rates is not the hardest thing to do because this loan program is so simple. You do not have to verify your income, assets, credit, or the value of your home. As long as you have timely mortgage payments, you have a good chance at refinancing. Always think the process through carefully, though. You have to pay closing costs and the 0.5% funding fee again. Is it worth it to reap the savings the new loan will give you? Don’t make a rash decision – sit down and think about your future and where you see yourself in five years. Then crunch the numbers to see what makes the most sense. Sometimes it isn’t the lowest interest rate that you take, but the loan that saves you the most money in the long run.