Today we’re here to talk about Veterans Affairs IRRRLs (pronounced like the name “Earl”).
A Good Time To Look At Refinancing Your Loan
If you have a VA loan you might want to think about refinancing. That’s because interest rates have dropped and you may be able to obtain a lower interest rate.
The reduced rate could then help you achieve lower monthly payments.
The vehicle for this refinancing is called a VA Interest Rate Reduction Refinance Loan or VA IRRRL.
An IRRRL is often called a “VA streamline refinance” because the lending approval process is greatly simplified. An IRRRL doesn’t require an appraisal or go through the typical VA lender underwriting process. That saves a lot of time, paperwork and fees.
Moving from One Loan To Another With An IRRRL
A VA IRRRL is used to refinance one VA mortgage into another. It should be an improvement on your old VA loan. You should get a lower rate, a lower payment, or both. You can also move from an adjustable-rate mortgage (“ARM”) loan to a fixed-rate loan.
To apply for an IRRRL, you may not need an appraisal or credit score. You can refinance the loan with “no money out of pocket” by including all costs in the new loan. However, you cannot receive any cash from the refinance loan proceeds.
Except when refinancing an existing VA guaranteed adjustable-rate mortgage (an “ARM”) to a fixed rate, it must result in a lower interest rate. When refinancing from an existing VA ARM to a fixed rate, the interest rate may increase.
A Streamlined Process
No appraisal or credit underwriting package is required by VA. You should be aware, however, that lenders may require an appraisal and a credit report anyway.
A certificate of eligibility is not required, and 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 all the closing costs for you.
Do Your Homework When Checking Out Lenders
As we always recommend, veterans are strongly urged to contact several lenders. There can be big differences in the terms offered by various lenders you contact. You can use our The Best VA Loan Lenders list as a reference.
Some lenders may contact you suggesting that they are the only lender with authority to make IRRRLs. That’s a flat out lie. Any lender may make you an IRRRL.
Some lenders may say that VA require certain closing costs to be charged and included in the loan. In reality, 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.
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.
Shorten The Term of Your Loan
Some lenders offer IRRRLs as an opportunity to reduce the term of your loan from thirty years to a fifteen-year loan. 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 or 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 could 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 lein, so that your new VA loan will be the first mortgage.