Standard VA Refinance vs. IRRL
There are two basic types of VA refinance programs, both having certain advantages depending upon the circumstances. Refinancing from an existing VA loan to another can be a good idea if the borrower is refinancing out of an adjustable rate mortgage into a more stable fixed rate product. Or a veteran has been paying on a mortgage for a few years and has 20 years left on the mortgage. By refinancing into a 20 year loan, the veteran can reduce the amount of interest paid long term without losing any previously paid interest. Of course the most common reason to refinance is to lower the monthly payment because VA mortgage rates are lower than the current one.
The two types of VA refinance programs is the traditional VA refinance and the Interest Rate Reduction Refinance Loan, sometimes referred to as the IRRRL or a “streamline” refinance. What are the differences between the two?
By far the most common refinance is the streamline version. The VA streamline requires much less documentation compared to the original VA mortgage. There is no need to verify income or employment. Asset verification isn’t needed and an appraisal can be waived. As long as the veteran has no more than one late payment in the last 12 months, the reduced documentation loan can be used.
However, if the veteran wants to pull cash out of the home during the refinance, a streamline wont’ work. VA streamline prohibit cash out so the veteran applies for a traditional, fully documented VA loan. If the existing loan isn’t currently a VA loan, the streamline in this instance also cannot be used as the streamline is only for VA to VA transactions.
The primary difference between the two is the level of documentation. If the borrower meets the streamline requirements, then the streamline is the option. If not, then the fully document, traditional VA refinance is the choice.
