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Your Complete Guide to the VA Home Loan

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    Interest Rate Reduction Refinance Loans

    It’s often thought that the VA loans program is only available to qualifying military personnel and surviving spouses who are looking to purchase their first homes, but there are a number of other options. VA loans are also available to qualified borrowers who wish to refinance their homes, either to save on monthly payments by securing lower interest rates or to access cash via their home’s equity. Each and every day, the Fortress VA Loans family of VA loan specialists and lenders helps veterans, active-duty service members, and their families navigate the VA refinancing process.

    As financial markets fluctuate, interest rates do the same thing. When the economy is struggling, interest rates are likely to be higher, because finances are tighter for most borrowers and lenders assume there is a greater chance that borrowers will default on their loans. However, when the economy is doing well, interest rates are likely to be lower, because borrowers are more likely to be in better financial shape, and lenders have less reason to fear their borrowers will default.

    If you are a veteran, currently active service member, or surviving spouse who obtained a VA home purchase loan at a time when interest rates were relatively high, you may wish to refinance your loan at a time when interest rates are generally lower in order to lower your monthly and overall payments. Alternatively, if you are a qualified borrower who originally received an adjustable-rate VA loan, you may want to refinance into a fixed-rate loan. In either of these cases, VA Interest Rate Reduction Refinance Loans (IRRRL), also known as VA Streamline Loans, might fit your needs.

    These costs can be paid by your seller, by a credit from your lender (basically an adjustment to your interest rate), or by a credit from a real estate agent (although this is illegal in some states). In lieu of these options, you, the borrower can cover these costs in a non-direct way as part of an origination fee.

    The IRRRL is only available to borrowers whose original loan was backed by the VA. It reuses your original VA loan entitlement, meaning that you do not need to obtain a new Certificate of Eligibility (COE). Depending on the lender’s requirements, a new appraisal of the property may not be required. Closing costs and fees can be paid up front or financed into the loan amount, meaning there are no required out-of-pocket costs. Credit requirements for IRRRLs are less strict than for VA home purchase or Cash-Out refinance loans; you must be up-to-date with your current mortgage payments but may have one late payment (up to thirty days overdue) within the last year. With an IRRRL, you can refinance into either an adjustable-rate loan or a fixed-rate loan.

    There are only a few stipulations on IRRRLs. Borrowers cannot receive any cash from the IRRRL process, and their new monthly payments must be lower than the monthly payments on their previous loan. (The exception to the latter is for borrowers whose new mortgage has an adjustable rate.) You can use the IRRRL on a property that you used to live in and still own but do not occupy anymore, as opposed to the Cash-Out refinance option, which can only be applied to your current primary residence.

    If you’re a veteran, an active-duty service member, or a surviving spouse who is looking to refinance your current mortgage, contact Fortress VA Loans today to see if the Interest Rate Reduction Refinance Loan option fits your needs. Our family of VA loan specialists and lenders can answer all your questions and guide you through the entire loan process from prequalification to closing.