The VA IRRRL is a great program available to veterans with a current VA loan. This program allows you to lower your interest rate by refinancing your current VA loan. Aside from the fact that you lower your rate, there are other benefits to this loan. Most notably, you do not have to verify very much in order to qualify for the loan. You do not need a new appraisal and you do not have to verify your income or credit. The VA relies on your mortgage history to determine your eligibility for the program. That being said, many people wonder if there is a waiting period before they can take advantage of the VA IRRRL.
No Waiting Period
According to the VA, there are no seasoning requirements for the VA IRRRL. This means you do not have to wait for a specific waiting period to pass before refinancing. If rates lower 3 months after you take out your VA loan, you are free to refinance. However, as with many other loans, lenders can have their own requirements on top of what the VA says. This means the lender may require that you wait a specific amount of time before refinancing. Generally, this is because they want to establish a more solid payment history. There is not a lot the lender can tell from just 3 months of mortgage payments. On the other hand, 12 months of payments can let a lender see your payment patterns. Chances are if you ask 3 different lenders how long they prefer borrowers to wait for the IRRRL program, you will get 3 different answers.
The VA Guidelines
Understanding the VA’s guidelines for the IRRRL program can help you understand what to expect:
- Your mortgage payments must be on time. In general, this means no more than one late payment in the last 12 months. Some lenders do not allow any late payments though.
- You must receive some type of benefit from the refinance. It does not have to be a lower interest rate. Some borrowers refinance from an ARM to a fixed rate and their rate increases. You just need to show some type of benefit.
- You must prove occupancy in the home up to the date of application.
- You must have used your own entitlement for VA benefits for the loan.
Does it Pay to Wait?
Knowing that the VA and certain lenders have different requirements, you might wonder if it pays to wait. The answer is mixed. For some people, it makes sense to wait, while for others, it is not as big of a deal. Generally, it depends on the reason you refinance. If you are refinancing right away, it is likely because interest rates dropped dramatically. Otherwise, there is not much of a reason to refinance. It takes quite a while to start paying the principal of your loan down, so refinancing again will only rack up more fees for you. It will also start you over on your interest payments. However, if interest rates are much lower, it might make sense to refinance right away.
If you wait; however, you may stand to gain more benefits from the refinance. If you owe less on the home, your funding fee is lower. The funding fee is the money you pay to the VA for giving you the loan. The VA then uses these funds for their reserves. If they end up having to pay a lender back because a veteran defaulted, they use their reserves. Right now, the funding fee equals 0.5% of the loan amount for a VA IRRRL. Let’s look at an example:
Your original loan amount equals $175,000.
If you refinance right away, say 3 months later, you will likely owe very close to $175,000 still. This means on top of the 2.15% you paid when you originated the loan, you will pay another 0.5% for the refinance. This means:
$3,762.50 + $875 = $4,637.50
On the other hand, if you wait a few years before refinancing and you only owe $160,000, you would only pay $800. The amount you pay goes down the more you pay your principal down.
The exact amount you owe and how much it will cost you will help you make the decision that is right for you.
Finding a Lender for the VA IRRRL
Finding a lender for the VA IRRRL works the same as when you originated your VA loan. You do not have to use the original lender. You are free to use any VA lender. This means you should take the time to shop around. Because VA lenders can add their own requirements onto the loan, you will likely find different requirements with each lender. Some may require you to wait 12 months after originating your loan while others only require 6 months. It is to the lender’s benefit to make borrowers wait because they can see more of their mortgage history, but not all lenders require this.
Because the VA does not have a waiting period for the VA IRRRL, you are free to refinance your VA loan whenever you want. If you took an ARM just to get into the loan and take advantage of the low rate, you might want to refinance right away. On the other hand, if you have a fixed rate and are just waiting for rates to lower, you may want to jump at the rates when they hit the target number you had in mind. There is no right or wrong answer. Just remember, every time you refinance your VA loan, you reset it. This means you start over from the start of the term. If you had a 30-year term and you paid 5 years on it, but you refinance, you start it over again at 30 years. Keep this in mind as you decide how long you should wait to use the VA IRRRL program and lower your interest rates.