VA Streamline Refinance Helps Reduce Rising Closing Costs
Whether you are buying a home or refinancing your existing mortgage, closing costs can add up. Depending on your specific program, the size of your current loan, and the state you live in, sometimes closing costs can add thousands of dollars to the principal.
One group of borrowers who are enjoying lower VA loan closing costs are VA Streamline Refinance candidates. Also called, IRRRL (VA Interest Rate Reduction Refinance Loan), this appealing refinance program is specifically for veterans or military service members who already have a VA home loan. When these borrowers refinance, they get to enjoy the perk of not being charged many of the fees that often inflate closing costs.
VA Loan Closing Cost Savings
First, a bit about closing costs in general. Typically, for a home refinance, closing costs can include credit fees, an appraisal, paying points, escrow and title fees, lender fees (for handling your loan), and insurance and taxes. As a result of more government regulation, costs have risen as lenders comply with new rules, according to experts quoted in the Bankrate study. Extra costs are passed on to borrowers.
Closing costs can vary drastically by lender and are sometimes used to compensate for a lower interest rate, so be sure that you research these expenses by looking at the lender’s Good Faith Estimate form carefully, which will break down the costs for you. Closing costs can add up quickly and you want to make sure they don’t offset the savings you’ll gain from a lower monthly payment.
The good news for VA streamline refinance consumers is that many traditional closing fees do not apply, or are not allowed to be charged to veterans. For starters, VA Streamline refinancing does not require a home appraisal, so right off the top, that knocks off around $500 from the total closing costs.
Another major benefit of the IRRRL loan is that the process moves very quickly, typically less than one month from application to closing. The VA lender does not have to review W2s, paystubs, tax returns, or bank statements, which speeds up the process.
A shorter loan process means borrowers need a short loan lock. The shorter the lock, the cheaper it is. So a borrower who locks their VA streamline mortgage rate for 30 days will pay less than someone who has to lock for 45 or 60 days.
There are fees that active-duty service members and veterans who are borrowing under the VA refinancing program are simply not allowed to pay, including escrow fees, which usually amount to hundreds of dollars. The VA limits origination fees and requires lenders to charge no more than 1 percent of the loan to cover mortgage loan processing and underwriting costs.
VA IRRRL: Beyond Closing Costs
Besides saving money on the closing, the Department of Veterans Affairs-backed VA streamline program offers numerous other benefits as well.
Energy-efficient improvements can be included in the loan amount. If homeowners make upgrades that fall within the requirements of the program, you can add up to $6,000 of those improvement costs into your new mortgage.
Lower VA funding fee than for a VA purchase loan. The IRRRL funding fee is 0.5 percent of the loan amount, making it much less costly than the typical 2.3 percent that first-time VA home loan recipients must pay (view current funding fee charts here.)
Very lenient credit score minimums. You don’t have to have stellar credit to qualify for the VA streamline program. In general, as long as your current mortgage is in good standing, meaning no more than one late payment in a 12 month period, then you should be able to transition from your existing VA loan to the new loan seamlessly. As mentioned above, there are usually no income verification requirements.
Closing costs can be rolled in. You may hear advertisements for “no closing costs” loan programs, but what that really means is that the charges that you are responsible for do not have to be paid upfront. Borrowers can choose to add them onto the loan so they don’t have any exorbitant out-of-pocket expenses on closing day. Another option is that the lender could pay the costs, but that will likely mean you’ll get a slightly higher interest rate on the loan.
VA Streamline refinancing is ideal for people who are currently paying off their VA mortgage and want to take advantage of lower interest rates. Over time, a lower rate can equate to thousands of dollars in savings, while also lowering your monthly mortgage payment. With the added bonus of lower closing costs, the IRRRL is definitely a refinance option worth exploring.