Welcome to the SIT REP series that we are doing on the VA IRRRL refinance program. Today we are going to be talking about some of the VA IRRRL guidelines.
In the video below, our CEO Eric discusses some of the IRRRL guidelines that changed in 2018. These changes include the addition of a loan seasoning requirement, a net-tangible benefit (NTB) test, and recoup rule.
An Overview of the VA Streamline Guidelines
There are three main VA streamline loan guidelines that affect whether or not you can get an IRRRL at a specific point in time. We already mentioned these above, but just as a quick reminder, they are:
- Loan seasoning
- The NTB test
- Recoup rule
In the next sections, we’ll go over exactly what each of these new guidelines say.
Loan Seasoning
Before the 2018 law change, the VA loan didn’t have any seasoning requirement. However, in order to protect veterans from a few lenders who were practicing a predatory tactic called “loan churning,” a seasoning requirement was added.
In order to qualify for a VA IRRRL, a VA loan must be seasoned for at 210 days and you must have made your mortgage payment for at least 6 consecutive months.
The 210 day countdown begins from the due date of your first mortgage payment.
Here’s an example: Let’s say you closed on a loan in November of 2019 and you had 2 payments deferred. Because of this deferral, your mortgage payment isn’t due until Feb. 1, 2020. Based on the seasoning rule, your 210-day countdown would start on Feb. 1, 2020, so you’d be available to get an IRRRL at the end of August.
The NTB Test
In order to get a VA IRRRL, you have to receive one of a two specific benefits:
- Interest rate reduction of at least 0.5% on a fixed rate loan
- Interest rate reduction of at least 2.0% if going from a fixed rate into an ARM loan
Recoup Rule
The final guideline to get an IRRRL is that the refinance has to pass the VA’s 36-month recoup requirement.
Basically, every time you refinance, there are closing costs involved. The recoup rule requires that the actual monetary amount of these costs must recouped by your savings within 26 months.
Here’s an example: Let’s say your want to get a VA IRRRL. All together, the closing costs for this loan would be $3500. And because of how much your interest rate is dropping, you’ll be saving $100 each month off your loan payment.
In order to calculate how long it will take to recoup those closing costs, we take the closing cost amount and divide it by your monthly savings. So, in this example, $3500 ÷ $100 = 35 months. You could get this IRRRL because you would recoup the cost of closing the loan within the 36 month guideline.
Have Any Questions?
We hope this little explanation helped you understand what the VA’s guidelines are for getting a streamline refinance. However, if you have any questions, we’re always happy to help! You can either call us at 855-843-2458 or visit us online.
