VA IRRRL Overview
A VA Interest Rate Reduction Refinance Loan (IRRRL) is a type of home loan offered to eligible veterans who have a VA home loan. The IRRRL program is designed to help veterans lower their monthly mortgage payment and/or refinance their adjustable-rate mortgage into a fixed-rate mortgage.
What is a VA IRRRL?
VA IRRRLs are often referred to as “streamline refinances” because they require less documentation and paperwork compared to a traditional refinance. Veterans are able to take advantage of lower interest rates and more favorable loan terms.
Who Can Get a VA IRRRL?
Eligible veterans can use a VA IRRRL to refinance their current VA home loan into a new VA loan with a lower interest rate, shorter loan term, or different loan type (such as a fixed-rate loan instead of an adjustable-rate loan).
The VA IRRRL program is also available to eligible veterans who have a non-VA home loan and want to refinance into a VA loan.
The main reason people get VA IRRRLs is to lower their monthly mortgage payments.
To be eligible for a VA Interest Rate Reduction Refinance Loan (IRRRL), you must meet the following requirements:
- Active-duty military, veteran, or eligible surviving spouse: You must be an active-duty military member, veteran, or eligible surviving spouse with a valid VA home loan certificate of eligibility (COE).
- Previous VA loan use: You must have previously used your VA loan entitlement and have a current VA loan that you want to refinance.
- Primary residence: The property being refinanced must be your primary residence.
- Occupancy: You must occupy the property as your primary residence within 60 days after closing the loan.
- Good payment history: You must have a good payment history on your current VA loan and any previous VA loans.
- VA eligibility: You must have a valid VA home loan certificate of eligibility (COE).
It’s important to note that these are general eligibility requirements and the specific requirements may vary depending on the lender and other factors. It’s always best to check with a VA-approved lender for the most up-to-date information on the IRRRL program and your eligibility.
Eligibility Requirements for the Existing VA Home Loan
The existing VA home loan must meet a few requirements to be eligible for a VA IRRRL.
First, the existing loan must be a VA mortgage.
Second, the current homeowner must be a veteran or active-military (which means the existing loan was not assumed).
Thirdly, the mortgage payments must be current, and cannot have had more than one 30-day late payment in the past 12 months.
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“Mortgage churning” refers to the unethical lending practice of repeatedly refinancing a mortgage loan, even if there’s no benefit to the homeowner. Predatory lenders take advantage of veterans for a profit.
Abusive lenders would close VA purchase loans with artificially inflated interest rates so that they could refinance them one month later in to the lower market rate.
The U.S. Department of Veterans Affairs (rightfully) does not permit churning. This is why they mandate a six payments be made before refinancing in to a VA IRRRL.
Interest Rate Reduction of Half Percent (.5%)
Another way the VA attempts to prevent churning is to require a half percent (.5%) drop in the interest rate for the VA IRRRL. This is applicable when going from an existing fixed-rate mortgage to another fixed-rate mortgage with the term greater than, or equal to, the existing mortgage.
For example, a homeowner with a 30-year-fixed-rate mortgage at 6.5% can refinance to a 30-year-fixed-rate VA IRRRL with an interest rate of 6.0% (or lower).
Credit Score Requirements
The minimum credit score required for a VA Interest Rate Reduction Refinance Loan (IRRRL) varies by lender. However, most VA-approved lenders typically require a minimum credit score of 620.
VA IRRRL is not a VA Cash-Out Refinance
VA cash-out refinance loans are different from VA Interest Rate Reduction Refinance Loans (IRRRLs).
VA IRRRLs, also known as VA Streamline Refinances, are designed to help existing VA loan borrowers lower their monthly mortgage payment by obtaining a lower interest rate or a different term. These loans have relatively low closing costs and no income or property requirements.
Conversely, VA cash-out refinance loans require full credit qualifying and underwriting.
Moreover, the term “VA cash out” refers to any VA refinance that is not a VA IRRRL, regardless of the purchase. For example, a home loans is still a VA cash out refinance even if the veteran does not access any equity.
We know, it’s weird. See more details about non-VA IRRRL refinances here: VA refinances.
A VA IRRRL lowers the monthly payment by refinancing the existing VA loan into a new VA loan with a lower interest rate. The interest rate is one of the biggest factors that determine your monthly mortgage payment. A lower interest rate means you pay less interest on your loan each month, which in turn lowers your monthly mortgage payment. By refinancing your VA loan into a new loan with a lower interest rate through a VA IRRRL, you can potentially lower your monthly payment and make your home loan more affordable.
Underwriting Requirements for VA IRRRLs
The underwriting requirements for a VA Interest Rate Reduction Refinance Loan (IRRRL) vary depending on the lender, but typically include the following:
- Credit score: Most VA-approved lenders require a minimum credit score of 620, but some may have higher requirements.
- Income and employment: Lenders will want to verify your income and employment to determine your ability to repay the loan.
- Debt-to-income ratio: Lenders will calculate your debt-to-income (DTI) ratio to determine if you have enough income to cover your debts, including your new mortgage payment. The VA generally requires a maximum DTI ratio of 41%.
- Loan-to-value ratio: The loan-to-value (LTV) ratio is the amount of the loan compared to the value of the property. VA IRRRLs typically have a maximum LTV ratio of 100%.
- Property requirements: The property must be your primary residence and meet VA minimum property requirements.
- Occupancy: You must occupy the property as your primary residence within 60 days after closing the loan.
- VA eligibility: You must have a valid VA home loan certificate of eligibility (COE) and have previously used your VA loan entitlement.
It’s important to keep in mind that these are general requirements and each lender may have additional or different requirements. It’s always best to check with several VA-approved lenders to compare your options and find the best deal.
No Maximum Loan-to-Value (LTV)
The maximum loan-to-value (LTV) ratio for a VA Interest Rate Reduction Refinance Loan (IRRRL) is typically 100%. This means that the loan amount can be up to 100% of the appraised value of the property, or up to the maximum amount guaranteed by the VA.
In some cases, VA IRRRLs may be eligible for a higher LTV ratio if the veteran has made significant energy-efficient improvements to the property. In these cases, the LTV ratio can be up to 102.5%.
It’s important to keep in mind that the maximum LTV ratio for VA IRRRLs may vary depending on the lender and other factors. It’s always best to check with a VA-approved lender for the most up-to-date information on the IRRRL program and LTV requirements.
No Appraisal Needed for VA IRRRLs
Traditional refinance loans usually require an appraisal. This means you have to pay for someone to come to your home and estimate how much it’s worth. With VA IRRRLs, you don’t have to worry about that! You can refinance your VA loan without having to pay for an appraisal.
Typically, a VA IRRRL does not require an appraisal. Unlike traditional refinance loans, VA IRRRLs often do not require an appraisal, meaning you can refinance your VA loan without having to pay for an appraisal or go through the appraisal process. This can save you time and money and simplify the VA IRRRL process. However, it’s always best to check with a VA loan specialist to confirm if an appraisal is required for your specific VA IRRRL.
The VA typically does not require an appraisal for VA IRRRLs because the loan is a refinancing of an existing VA loan. The VA already has information on the property, including its value, from the original VA loan. Since the goal of a VA IRRRL is to lower the interest rate on the existing loan, rather than to obtain financing for a new property purchase, an appraisal may not be necessary. This can save veterans time and money, as well as make the VA IRRRL process faster and easier. However, it’s always important to check with a VA loan specialist to confirm if an appraisal is required for your specific VA IRRRL.
No Proof of Income or Job Needed
VA IRRRLs also don’t require proof of your income or job. This makes the process of getting a VA IRRRL much easier and faster compared to a traditional refinance loan.
Since you don’t have to provide proof of income or have an appraisal, the process of getting approved for a VA IRRRL is faster than getting approved for a traditional refinance loan.
Paperwork for VA IRRRL
The exact paperwork required for a VA Interest Rate Reduction Refinance Loan (IRRRL) may vary depending on the lender, but typically includes the following:
- VA Certificate of Eligibility (COE): This document verifies your eligibility for a VA home loan and is required for all VA loans.
- Loan application: You will need to complete a loan application, including providing information about your income, employment, debts, and other financial information.
- Proof of income: You may need to provide recent pay stubs, W-2s, and/or tax returns to verify your income.
- Proof of insurance: You may need to provide proof of hazard insurance and flood insurance (if applicable).
- Homeowner’s association (HOA) documents: If your property is part of an HOA, you may need to provide HOA documents such as the covenants, conditions, and restrictions (CC&Rs) and current financials.
- Property appraisal: An appraisal of your property will be required to determine its current value.
- Title report: A title report will be required to verify the ownership of the property and to check for any liens or encumbrances.
- VA Loan Disclosure: You will need to sign a VA Loan Disclosure, which provides information about the loan terms and conditions.
It’s important to keep in mind that this is a general list and the specific paperwork required may vary depending on the lender and other factors. It’s always best to check with the lender for a complete list of the required documents.
Costs of a VA IRRRL
Closing costs for a VA Interest Rate Reduction Refinance Loan (IRRRL) can include the following:
- Appraisal fee
- Credit report fee
- Loan processing fee
- Underwriting fee
- Document preparation fee
- Title search fee
- Recording fee
- Title insurance
- Survey fee (if required)
- VA funding fee
It’s important to keep in mind that closing costs can vary depending on the lender, the location, and other factors. Additionally, some closing costs may be included in the loan or can be paid by the seller. It’s best to ask the lender for a detailed breakdown of all the costs involved in a VA IRRRL.
The funding fee for a VA Interest Rate Reduction Refinance Loan (IRRRL) is 0.5% of the loan amount for regular military borrowers and 0.5% for first-time use for regular military borrowers who do not make a down payment. The fee may be higher for subsequent use by the same borrower and for borrowers who are members of the Reserves or National Guard.
The VA funding fee for a VA Interest Rate Reduction Refinance Loan (IRRRL) can be waived in certain circumstances for eligible veterans. The VA funding fee waiver is available for veterans who receive VA disability compensation.
To qualify for a waiver, veterans must provide proof of their VA disability compensation through a VA Certificate of Eligibility (COE) or by providing a statement from the VA showing that they receive disability compensation.
It’s important to note that the funding fee waiver only applies to the VA funding fee and does not cover other closing costs associated with a VA IRRRL.
It’s always best to check with the VA or a VA-approved lender to confirm if you are eligible for a funding fee waiver and to determine the exact steps you need to take to obtain the waiver.
In conclusion, VA IRRRLs are a great way for veterans to lower their monthly mortgage payments and make their home loan more affordable. With no appraisal needed, no proof of income or job needed, and a faster process, VA IRRRLs are the perfect solution for veterans who have a VA loan and want to lower their monthly payments. If you are interested in a VA IRRRL, talk to a VA loan specialist today and learn more!s
Loan Officer, NMLS # 729612