If you have a VA loan, you have the option to refinance with the VA IRRRL program. This loan requires little verification and allows you to refinance your loan for a lower rate or better term. You cannot take cash out with the program, but you can make your mortgage more affordable.
Since there are fewer requirements for this loan and less work for the lender to do, are the closing costs lower?
The Standard Closing Costs
Just as was the case with your purchase VA loan, the VA does limit the closing costs you can pay with the IRRRL. Typically, you’ll pay fewer closing costs for the VA IRRRL.
You can expect:
- A 1% origination fee
- Discount points if you want to buy the interest rate down
- Title fees
- Recording fees
- VA Funding Fee
If you do pay the 1% origination fee, the lender cannot itemize any of the following fees:
- Application fee
- Processing fee
- Loan closing fee
- Rate lock fee
- Notary fee
- Commitment fee
Please note that you don’t have to pay the discount fee. Only veterans that want to buy their interest rate down further than the lender offers will pay it.
The VA Funding Fee
We noted above that you’ll pay a VA funding fee; however, you won’t pay as much with the VA IRRRL. If you were in the standard military and purchased a home, you likely paid 2.15% of the loan amount for your purchase loan. If you were in the NationalGuard or Reserves, you paid 2.4% of your loan amount.
With the VA IRRRL, every veteran pays 0.5% of the loan amount. That’s quite a significant savings on the VA funding fee. You also don’t pay any annual mortgage insurance with the VA IRRRL program, just like the standard VA loan.
Qualifying for the VA IRRRL
Now that you know the low cost of the VA IRRRL, it’s important to know how to qualify for it:
- Show on-time mortgage payments for the last 12 months
- Show that there is a benefit for you to refinance
That’s all that’s required of you. If you have had your loan for less than 12 months, but at least six months, you may be able to refinance, but you’ll have to prove that you’ve made every mortgage payment on time. If you’ve had the loan for more than 12 months, you may be able to get away with one 30-day late payment; however, your loan must be current at the time of the refinance.
Is it Worth It?
Something you should give careful consideration to is if the VA IRRRL is worth it. Yes, you can lower your payment by getting a lower rate or even decrease your loan’s term, but it’s not always worth it.
Consider the closing costs a lender will charge. Remember, you can shop around with as many lenders as you want – you don’t have to use your current lender. Then determine how long it will take you to pay off those closing costs with the savings you’ll earn. This is called your break-even point.
Let’s say you could save $150 on your monthly payments and the closing costs are $3,000. It would take you 20 months to pay off the closing costs. If you think you’ll be in the home for a few years after that 20 months, it may be worth it. If you know you’ll move in the next two years, though, it may not be worth it.
The VA IRRRL is a great way to refinance your loan and save money. You won’t pay crazy amounts of closing costs, but you will pay them. It pays to shop around to find the best closing costs and interest rates to maximize your benefit of refinancing.