Are you a vet that hasn’t taken advantage of VA refinance rates? If so, you’re missing out on the best deal going in mortgage loans. If you’ve already got one you could qualify for an Interest Rate Reduction Refinance Loan (IRRRL) to take advantage of low VA refinance rates. Here are the basics you need to know about VA refinance rates to take advantage of the financial benefits you earned by serving.
VA Refinance Rates Are Still At Record Lows
VA home loans are made by private lenders and guaranteed by the Department of Veteran’s Affairs. Like any home loan they come in several different types and your eligibility is based on how long you served or on your current duty status. Your VA loan eligibility can only be used for a home that you personally occupy. The program requires a decent credit score to qualify and offers VA mortgage rates for purchase as well as cash-out refinance.
The Interest Rate Reduction Refinance Loan Is a Gem
Once you’ve got a VA home loan one its best features is your ability to take advantage of VA refinance rates with the program’s Interest Rate Reduction Refinance Loan (IRRL). This is essentially a VA Streamline Refinance which allows you access to lower VA refinance rates without a credit check or home appraisal.
VA home loans are very similar to FHA home loans with the added benefit of not requiring you to carry mortgage insurance. FHA mortgage insurance can add hundreds of dollars to your monthly payment making these loans more suitable for homeowners with credit challenges.
IRRRL Basics You Need to Know
The most attractive feature of the VA streamline refinance is that you don’t need credit underwriting or a home appraisal. You can use an IRRRL to take advantage of VA refinance rates with a no-cost or no cash out of pocket home loan, meaning your new lender will roll all the costs into the balance of the new mortgage or pay your loan origination fee and other closing cost with yield spread premium.
Keep in mind if you choose the latter you’re giving up the lowest VA refinance rates in exchange for the lender paying your fees, which also means you’ll have a higher mortgage payment.
If you’re refinancing an existing Adjustable Rate Mortgage with fixed VA refinance rates keep in mind that your interest rate and payment amount could increase. Also, cash out refinancing is not allowed with the Interest Rate Reduction Refinance Loan and you must already have a VA mortgage on the property.
Many lenders offer IRRRL refinancing with term lengths of 15 or 30 years. Because lender participation in the VA guarantee program is voluntary for lenders you’ll find differences in what banks and lenders offer. It is possible that a lender might deny your application for IRRRL because lenders are not required to participate. Also, differences in closing costs like the loan origination fee make comparison shopping important for any VA home loan.
Comparison Shopping for VA Refinance Rates
Just because you’re getting VA refinance rates doesn’t automatically mean you’re getting a good deal.
In fact, the fees you pay closing on any home loan make or break the deal you’re getting. You’ll have to pay the VA a funding fee which is a percentage of your home loan based on your VA eligibility.
The fees you pay closing on your VA mortgage, regardless of the type are set by the lender and are not regulated by the VA. This includes any discount points, the loan origination fee and any junk fees the lender tries to slip past you.
The less you pay closing on your new home loan the more benefit you’ll get form VA refinance rates. Simple comparison shopping using the Good Faith Estimate will ensure you’re not overpaying at closing if you go about it correctly.
How to Shop for the Best VA Refinance Rates
Before you start shopping for a lender for your VA refinance it’s important to make sure your credit score is as high as possible. You can do this by making sure that your credit reports are accurate at AnnualCreditReport.com and by paying down the balances on your credit cards below 30% of your limit. Once you’re satisfied with your credit score you’re ready to start shopping for a lender.
Do you know which mortgage fees are required and how much is reasonable to pay at closing? Should you pay discount points and what about that loan origination fee?
Discount points are a relic of the 1980s when homeowners were paying for double-digit mortgage rates. Essentially you’re paying this fee to buy down your mortgage rates. For every discount point you agree to pay at closing you typically lower your interest rate by .25 percent. VA refinance rates are still near historical lows making discount points an unnecessary expense that chances are you’ll never recoup.
Despite this lenders advertise VA refinance rates that include discount points to make their offers seem more attractive, often burying the fees in impossibly small print.
When requesting VA refinance quotes make sure you’re getting zero discount point quotes
If you’re interested in seeing how paying discount points affects your monthly payment there is a table on page three of the Good Faith Estimate.
Loan Origination Fees & Yield Spread Premium
The most important fees you’ll want to focus on when shopping for VA refinance rates are found on page two of your Good Faith Estimate. Page two is all about understanding estimate settlement charges. Keep in mind that the fees found on your VA refinance quotes are only “estimates” and could change on your HUD-1 Settlement Statement.
Page two, box A, item one is the loan origination charge. This is the fee paid to the person or company arranging your VA home loan and most brokers will tell you that one percent is reasonable. This might be a reasonable amount; however, you can do a lot better. I’ve reviewed small community and military credit unions that charge as little as $400 for loan origination. Remember, the less you pay for the mortgage origination fee, the more benefit you get from VA refinance rates.
Item 2 of box A is any yield spread premium based on specific, quoted VA refinance rates. For the uninitiated, yield spread premium is a credit paid by the lender for accepting higher than market interest rates. This credit is used to pay the loan origination fee and other closing costs. Yield Spread Premium works like discount points in reverse. The lender pays you the credit because you’re accepting a higher interest rate meaning your payments will also be higher.
Should you accept yield spread premium to pay your closing costs? If you’re strapped for cash and can’t pay the fees yourself this might seem like your only option. Remember that you might also be able to roll these fees into your mortgage balance without agreeing to higher VA refinance rates.
The next section on page two of your Good Faith Estimate is box B, which details specific lender fees that you can and cannot negotiate. Comparing these fees from a variety of banks, credit unions and other lenders will give you a good idea of what’s reasonable allowing you to negotiate to pay less.
How to Protect Your Credit Score When Shopping for Refinance Rates
One last thing to keep in mind when requesting quotes for VA refinance rates. Make sure you’re giving the loan officer your Social Security number. This will ensure that you’re getting an accurate quote. Many homeowners refuse to give their Social Security number when shopping for VA refinance rates because they think they’re protecting their credit score. If you do this you’re relying on that loan officer’s best guess as to what interest rate you’ll qualify, which is almost always a waste of everyone’s time.
The trick to protecting your credit score from excessive inquires when shopping for VA refinance rates is to limit all of your quotes to a two-week period. (14 days) If you do this you’ll only get dinged for one mortgage lender inquiry on your credit report and will protect your credit score.
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