Any Reason Not to Refinance?

[Michal Kolenda]

Hi all, a few weeks ago I got a letter in the mail saying I was eligible for the VA IRRL loan, which is essentially a streamlined refinance with no appraisal, for as low as 3.7%. I thought that was incredible seeing as I closed on a 3 flat in December 2018 for 4.75%. Once I called up Loan United they started offering even lower rates, but that's when I learned about points.

Long story short after shopping around and sending the loan estimate a few times I landed on 2.875% for nearly 0.7 points. I thought this was too good to be true until Loan Depot gave me the loan estimate. So in my inexperienced opinion I thought this is amazing. I'm able to save nearly $500 a month and will be able to live PITI free. House-hack mission accomplished...

Except am i missing the full picture? Any other angles I should be looking at? Please share

[Chris Mason]

Nothing wrong with doing an IRRRL. There are little hole in the wall IRRRL-only mortgage banks out there that don't even have underwriters on staff who really know how to calculate income or review an appraisal... since IRRRLs don't need those, and all we're doing is IRRRLs (no purchase, no cash out, just ONE subcategory of ONE mortgage product), why even staff for things like "income calculations" or "DTI" or "appraisals," when we could otherwise reduce expenses?

You do need those things on a purchase mortgage, so that business model is basically IRRRL only. I usually try to keep my VA buyers away from going TOO crazy on buying down the rate at the point of purchase, since everyone knows that junk mail is going to arrive like an avalanche right around the 6 month mark from when they purchased.

And this is the one type of mortgage where I'll basically sign off and give you the go-ahead to work with an idiot who has been licensed for 0.34 seconds, if that idiot happens to be quoting the best, and isn't charging any upfront fees. Give 'em a shot, professionalism, competence, and knowledge, really do not matter for a VA IRRRL, the only possible downside risk is that it doesn't go through and you pay your higher current payment for an extra month while you find someone slightly more competent to get it done (no paystubs or tax forms are required, so it's not even like you will be spending time on uploading paystubs or finding your W2s...).

Don't fall into a trap though. Nothing wrong with an IRRRL, a single "one and done." Don't get churned, if you're paying 0.7 points today for 2.875%, don't pay 0.4 points in six months to drop it to 2.75%, and then another 0.6 points in six months to get 2.625%, and so on, just stop, it's not worth it, the "skip two payments!" is just smoke and mirrors (you are deferring, at best), and no one ACTUALLY sits around at cocktail parties or social gatherings comparing their mortgage rates (most homeowners, 2 months after closing, have no idea in the world what their rate is, only their payment). Now that you're in the "has done an IRRRL" databases, all these random cold calls you will get making mention of them being from the "special veterans benefit department" (I get the same calls) are actually just VA IRRRL churners, and when I say "you're wasting your time, I'm a mortgage broker," they just keep reading their script. Also expect 10x the junk mail now that you're in these IRRRL databases, fair warning. You might see a familiar name quoted in the following Wall Street Journal article on the very subject of this paragraph. :)

https://www.wsj.com/articles/mortgage-firms-churning-refinance-loans-to-veterans-1506510002 (outline.com link if you hit a paywall --> https://outline.com/s7VrDE)

TLDR: Sure, go for it. Once. TYFYS.