You Can’t Do These Things with an IRRRL

Worried Guy

The VA Interest Rate Reduction Refinance Loan, also known as the Veterans Affairs Streamline Refinance program is probably the best refinance program out there today.

Without the need to verify a borrower’s income, pull out credit, or conduct an appraisal, refinancing becomes faster and easier, with very little work required on the part of the borrower.

Unfortunately, it is only available to eligible military service members, on duty or retired, and their spouses.

So if you are eligible, you are given access to a way easier refi process that grants you a lower mortgage rate and most possibly, a lower mortgage payment every month.

But it’s not all easy-peasy. Though it does have very lenient qualifications and guidelines, the program also has its own set of limitations. Let’s get to know these in detail.

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Catching up on past dues

The IRRRL rule for mortgage payments is: no late payments for the past 12 months (1 year).

That means you need to be current on your mortgage payments without any record of payments paid past their due dates.

Even if you only have one late payment, you still have to wait for that record to disappear or pass the one-year timeline.

So if you have paid your due late this month, you will have to wait for a full year – without any other payment issue, to qualify for the IRRRL program.

Increasing your loan amount

The core aim of the VA IRRRL program is to lower your interest rate so that you will have lower monthly mortgage payments, except for certain conditions.

To make this achievable, you may not increase your principal loan amount in order to take out equity for a cash-out. There is a separate VA refinance program for that ( check the VA Cash-Out Refinance option).

The loan amount that you can borrow with the VA Streamline Refinance program should only be equal to the outstanding principal on your mortgage and the funding fee that is charged on the loan.

Increasing your payment by more than 20 percent

Savings being the primary aim of the program, they set a cap as to the total increase in the resulting payment allowed in your new loan. It should not climb by 20 percent of the original payment amount.

However, there are exemptions to this rule:

a) when you refinance from an adjustable-rate mortgage to a fixed-rate mortgage; and

b) when you refinance from a 30-year term loan to a 20-year term loan

If one of these is your situation, your resulting payment may increase by 20 percent, but your lender must assure that you are financially capable to shoulder the burden of the new loan.

Expect your lender to ask you to pass documents typically required for traditional underwriting, including a credit rating check.

This not only helps them ensure that their investment is protected, but also buffers you from potential trouble by now carrying a more expensive mortgage.

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