The VA IRRRL refinance makes it easy for current VA mortgage holders to refinance their loan. This loan program requires very little verification and has low costs. Before you decide to use this program, read our frequently asked questions to make sure you have a good understanding of the loan and what you should expect.
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Q: Do you have to pay a VA funding fee?
A: Yes,
there is a funding fee on the VA IRRRL refinance, but it’s lower than the original funding fee you probably paid. All eligible veterans, no matter their type of service, pay 0.5% of their new loan amount on the VA IRRRL refinance. This is significantly less than the 2.15% or 2.4% that you may have paid when you took out your original VA loan.
The funding fee is what keeps the VA in the business of guaranteeing loans for veterans. Without these funds, the VA would be unable to bail lenders out from defaulted loans. This would make lenders unwilling to write 100% loans for veterans with average credit scores and higher than average debt ratios.
Q: Do you have to verify your income?
A: Technically, you don’t have to verify your income. The only thing that the VA requires is proof that you made your last 12 months of mortgage payments on time and that there is a net tangible benefit for the refinance. The VA doesn’t require lenders to verify your credit score, income, assets, or the value of your property.
Some lenders may require proof of income, though. Since lenders underwrite and fund the loan, they can add more restrictions to what the VA requires to make sure that you are a good risk. If you don’t want a lender
verifying your income, shop around for a lender that doesn’t have lender overlays.
Q: Do you need an appraisal for the VA IRRRL?
A: No, you don’t need an appraisal. The VA allows lenders to use the original value of your home to process the new loan. Since this is a rate/term refinance, the value shouldn’t affect your loan approval much. You can save the money you would have paid for the appraisal.
Q: What is a net tangible benefit?
A: One of the largest requirements of the VA IRRRL refinance is that you have a net tangible benefit. In other words, is there a benefit to refinancing your loan? If not, the VA doesn’t want you wasting your money on the refinance. No refinance is ‘free.’ You’ll pay either closing costs or a higher interest rate in place of the closing costs. Without a benefit, the VA won’t let you refinance because it could put you in poor financial condition.
Q: Can you take cash out of your home’s equity with the VA IRRRL?
A: No, you cannot receive any cash in hand with the VA IRRRL. It’s strictly a rate/term refinance. The VA intends for you to lower your interest rate, lower your payment, or change your term to something more affordable.
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If you need to take cash out of your home’s equity, you’ll need to apply for the
VA cash-out refinance. While this loan program also has flexible guidelines, you will have to verify that you can afford the loan and have the credit score to support the refinance.
Q: Can you pay off a 2nd mortgage with the proceeds of the VA IRRRL?
A: No, you can’t pay off your 2nd mortgage with the proceeds of the VA IRRRL. Your maximum loan amount is equal to the outstanding balance of your current VA loan plus allowed closing costs and the funding fee.
If you have a 2nd mortgage, you’ll have to seek approval from your 2nd mortgage lender to subordinate the loan. In other words, the 2nd mortgage lender must take second lien position, just as they did when they gave you the loan. Many lenders are willing to subordinate as long as you made your previous monthly payments on time.
Q: Can you refinance a VA ARM loan into a VA fixed rate loan with the VA IRRRL?
A: Yes, you can refinance your ARM loan into a fixed rate loan. In fact, this is one of the top net tangible benefits the VA allows. The ARM loan poses a risk once it starts adjusting. You won’t know what your payment is from year to year. There is the chance that you won’t be able to afford your loan payments in the future.
The fixed rate loan never changes. You lock your interest rate in and keep it for the life of the loan. You can predict your payments and budget accordingly. This makes it less risky for lenders and is a good benefit/reason for the VA IRRRL.
Q: Do you have to use your current VA lender for the VA IRRRL?
A: No, you are free to use any lender you want. It’s a good idea to get a rate/fee quote from your current lender, but it’s also a good idea to shop around. When you shop around, you can find out what other lenders charge for their loan as well as what requirements they have for underwriting.
Q: Do you need a new Certificate of Eligibility for the VA IRRRL?
A: No, you don’t need to secure a new Certificate of Eligibility for the VA IRRRL refinance. The VA allows you to reuse your current eligibility since you are refinancing only the amount that is outstanding on your current VA loan.
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