The VA IRRRL What Is It? The IRRRL is also known as the VA streamline, and in this article, we might use these two terms interchangeably. The streamline is an incredible opportunity for veteran homeowners looking to refinance and take advantage of lower interest rates. One hurdle that many veteran borrowers sometimes face, is not quite understanding what the VA’s streamline loan is and how it works. We will take a closer look at some of the terminology that you might hear or read about related to the VA IRRRL program. Hopefully, after learning more about these VA refinance loan terms, you’ll understand why the VA streamline refinance is a wonderful option for VA homeowners. In addition, we will also take a look at circumstances when the VA streamline may not be the right option.
The VA IRRRL What is it and How is it Defined
The first VA refinance term we will take a look at is “streamline refinance”. Most people know the concept of how a refinance works, but not necessarily on what a refinance actually is. It’s easier to understand the rest of the VA refinance terminology if we first get a basic understanding of the principles of refinancing and how it is defined. A mortgage is a type of loan that is secured by a real estate property (could be residential, or commercial). A refinance in the mortgage industry is when a new loan (totally separate from the existing loan) is used to pay off the existing loan and is secured by the same property. So, a refinance is a completely new loan, and as such, is usually subject to the same steps and process that a new purchase loan is. A VA IRRRL is a type of refinance that is more directly related to the existing loan. In a streamline refinance, much of the underwriting information is taken from the existing loan, which speeds up the process considerably – hence the word “streamline”. In every loan program (conventional, FHA, VA), streamlines are mostly reserved for situations where most of the underwriting considerations have not changed much since the existing loan was underwritten.
Understanding Amortization and the VA IRRRL
The word Amortization is another term you will probably hear in the mortgage industry, both when you got your original loan, and when you get a VA streamline. This, like “refinance”, is a word that most existing home buyers understand in context, but would likely have a hard time explaining. Understanding what amortization really means will help you make a good decision when thinking about the VA IRRRL. Amortization simply means paying off a debt (mortgage) over a fixed schedule. This schedule incorporates interest and calculates how much principal to add each month for the loan to be paid off at the end of the loan term. There’s a lot to say about amortization, but for you to understand the process of refinancing, you just need to know that “fully-amortizing” refers to a monthly payment that pays all of the interest owed for that month and all the principal needed to maintain the amortization schedule. In other words, if your monthly payment is $1000, and you pay at least that much (you’re not behind), then you’re making a fully-amortizing payment.
Save With the Energy Efficiency Mortgage
Another term you might often hear is EEM, or Energy Efficiency Mortgage, An EEM is a possible option to add on to your VA streamline refinance loan. The EEM will allow you to get additional money to pay for energy efficient upgrades to your home (better insulation, new windows, etc.). The EEM can be a great opportunity to improve your home and save money on your utility bills each month.
Other VA Loan Terminology
The terms equity, fair market value, and existing balance (also called remaining balance) may also come up. Existing balance is how much principal you still owe on the home, and fair market value is what the home can reasonably be sold for on the free market. Equity is calculated by taking the fair market value and subtracting the existing balance and is the amount of money that would go in your pocket if you were to sell the home at the fair market value. When you’re getting an IRRRL, you are limited to the existing balance on the loan, and cannot get a loan for more than the principal still owed on the existing loan (except for the EEM and closing costs).
Hopefully, we have answered your question of VA IRRRL what is it? If you still have a question and would like to speak with a VA streamline licensed loan officer call 855-956-4040.