IRRRL Facts for
Veterans
IRRRL stands for Interest Rate Reduction Refinancing
Loan. You may see it referred to as a
"Streamline" or a "VA to VA." Except when
refinancing an existing VA guaranteed adjustable
rate mortgage (ARM) to a fixed rate, it must result
in a lower interest rate. When refinancing
from an existing VA ARM loan to a fixed rate, the
interest rate may increase.
No appraisal or credit
underwriting package is required by VA. You
should be aware, however, that lenders may require
an appraisal and credit report anyway.
A certificate of
eligibility is not required. Your lender may
use our e-mail confirmation procedure for interest
rate reduction refinance in lieu of a certificate of
eligibility.
An IRRRL may be done
with "no money out of pocket" by including all costs
in the new loan or by making the new loan at an
interest rate high enough to enable the lender to
pay the costs. (Remember: The interest
rate on the new loan must be lower than the rate on
the old loan unless you refinance an ARM to a fixed
rate mortgage).
No lender is required
to make you an IRRRL, however, any lender of your
choice may process your application for an IRRRL.
While it might be the best place to start shopping
for an IRRRL, you do not have to go to the lender
you make your payments to now or to the lender from
whom you originally obtained your VA Loan.
Veterans are
strongly urged to contact several lenders.
There may be big differences in the terms offered by
the various lenders you contact.
Some lenders may
contact you suggesting that they are the only lender
with authority to make IRRRLs. Remember - Any
lender may make you an IRRRL.
Some lenders may
say that VA requires certain closing costs to be
charged and included in the loan. Remember -
The only cost required by VA is a funding fee of
one-half of one percent of the loan amount which may
be paid in cash or included in the loan.
You must NOT receive
any cash from the loan proceeds.
An IRRRL can be done
only if you have already used your eligibility for a
VA loan on the property you intend to refinance.
It must be a VA to VA refinance, and it will reuse
the entitlement you originally used. You may
have used your entitlement by obtaining a VA loan
when you bought your house, or by substituting your
eligibility for that of the seller, if you assumed
the loan. If you have your Certificate of
Eligibility, take it to the lender to show the prior
use of your entitlement.
The occupancy
requirement for an IRRRL is different from other VA
loans. When you originally got your VA loan,
you certified that you occupied or intended to
occupy the home. For an IRRRL you need only
certify that you previously occupied it.
The loan may not
exceed the sum of the outstanding balance on the
existing VA loan, plus allowable fees and closing
costs, including funding fee and up to 2 discount
points. You may also add up to $6,000 of
energy efficiency improvements into the loan.
NOTE: Adding all
of these items into your loan may result in a
situation in which you owe more than the fair market
value of the house, and will reduce the benefit of
refinancing since your payment will not be lowered
as much as it could be. Also, you could have
difficulty selling the house for enough to pay off
your loan balance.
Some lenders offer
IRRRLs as an opportunity to reduce the term of your
loan from 30 years to 15 years. While this can
save you a lot of money in interest over the life of
the loan, if the reduction in the interest rate is
not at least one percent (two percent is better) and
lots of new loan costs are rolled into the new loan,
you may see a very large increase in your monthly
payment.
Beware: It
could be a bigger increase than you can afford
No loan other than the
existing VA loan may be paid from the proceeds of an
IRRRL. If you have a second mortgage, the
holder must agree to subordinate that lien so that
your new VA loan will be a first mortgage.
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