The VA IRRRL loan allows veterans to refinance in the simplest manner. You don’t need to verify your income, assets, credit score, or the value of your home. Lenders rely on your mortgage payment history and net tangible benefit to qualify you for the loan.
If you remember, though, when you bought your home with a VA loan, the VA restricted the closing fees you could pay. If there were any fees that aren’t allowed, someone else had to cover them. Is this the case with the VA IRRRL loan too?
The answer is ‘yes.’ The VA only allows certain fees on the VA IRRRL. Keep reading to find out which fees you can pay.
The Fees the VA Will Allow
The list of fees the VA allows on a VA IRRRL or VA streamline loan is very small. It includes:
- Origination fee (this is usually all lender fees rolled into one percentage)
- Any points to buy the interest rate down (this is called discount points)
- Any fees related to the title (all lenders will require that you have a title search done and that you pay for title insurance)
- Any fees related to determining if you are in a flood zone
- Any fees charged to record your deed with the county
The one last fee that the VA allows pertains to the VA itself. It’s the VA funding fee. You probably remember paying that when you bought the home, because it was a hefty fee then. If you were in the regular military, you paid 2.15% of your loan amount. On a $200,000 loan, you would have paid $4,300. When you refinance with the VA IRRRL you pay 0.5% of the loan amount. On the same $200,000, you would pay $1,000.
The Rules Involved With the Lender Fees
Now just because the VA says that a lender can charge an origination fee or that you can pay discount points doesn’t mean that the sky is the limit. The VA sets the limits.
For example, you can only pay a 1% origination fee, nothing more. If the lender does charge an origination fee, they cannot itemize their basic costs, such as application, processing, or closing fees. You also cannot pay any fees to lock your rate or loan commitment fees.
The VA has a funny rule that you cannot pay more than 1% of an origination fee or the total of your lender closing costs cannot exceed 1% of the loan amount. In the end, it works out to be about the same.
As far as the discount fee goes, you are able to pay up to 2 points or 2% to buy your interest rate down. The discount fee is often easier to accept because it helps you buy your interest rate down, which means lower payments. It also helps you qualify for the VA IRRRL loan easier because you are able to prove that you have a net tangible benefit by taking the lower interest rate.
The VA actually does let you pay more than 2% if you want to get an even lower interest rate. Where the 2% rule comes in is regarding how much you can roll into your loan amount. The VA allows you to roll in allowable closing costs into your new loan amount. If you include discount points in there, though, you may only roll in 2 points. If you pay more than 2 points, you’ll have to pay anything above 2% out of your own pocket.
There are a few other fees that the VA does allow. Typically, these fees don’t pertain to a VA IRRRL because lenders don’t require them, but if you come across a lender that requires a credit report or a drive-by appraisal, you may have to pay them.
The credit report fee and appraisal fee are allowed on the VA IRRRL. The only requirement the VA has in regards to these two fees is that they are reasonable and customary for the area. In other words, the lender can’t overcharge you for the services.
The VA IRRRL program gives you access to a great way to refinance. With the restriction on your fees, you are able to save money on your closing costs as well as on the mortgage itself. As with any loan, you should shop around to make sure that you can find the best deal.