Interest Rate Reduction Refinance Loan (IRRRL) is a streamline refinance program created by the Veterans Affairs (VA) for homeowners with existing VA loans. Take a look at how the IRRRL compares with other streamline refinance programs by its guidelines.
Being streamlined, this VA-to-VA refinance has no appraisal, credit, and income and debt level requirements so less paperwork and faster process for the borrower.
The VA streamline refinance program aims to help existing VA homeowners lower their current mortgage rates and thus lower their monthly mortgage payments.
IRRRL Eligibility Guidelines
Mortgage
Any homeowner with a VA loan can apply for an IRRRL refinance. The program also does not require the borrower to present a new Certificate of Eligibility (COE); but if you have one, you can show it to the lender as proof of your prior use of entitlement.
Rate
For a homeowner to see a reduction in both rate and monthly payment is the quintessential goal, if not requirement, of any IRRRL refinance. But this may not be the case in some IRRRL refinances. Refinancing into a fixed-rate mortgage from an adjustable-rate mortgage results in getting a higher interest rate.
Lender
You can refinance your existing VA loan with your current lender or find another lender to do the refinance. But as the VA says, no lender is under any obligation to refinance your loan. IRRRL loans are available with lenders approved by the VA.
Appraisal
The program does not require a new appraisal on your property.
Credit
A credit check is not required when applying for an IRRRL. But if your loan is past 30 days or more due, you have to undergo credit underwriting.
Occupancy
The VA requires that you sign a certification that you previously occupied the home subject to the refinance. That’s it.
Loan Attributes and Costs
Loan Limit
The VA does not set a cap on how much you can borrow (it varies per county and based on
2017 conforming loan limits) but it does limit the portion of the loan it will guarantee.
Entitlement
This is a “benefit” to veterans who qualify for a VA loan. Every veteran has a basic entitlement of $36,000. Some of this entitlement was likely used when the borrower took out the purchase loan. The remaining entitlement can still be used for another VA loan, e.g. IRRRL.
Funding Fee
Whenever you take out a VA loan, you are required to pay a funding fee. For IRRRLs, this is 0.50% of the loan amount. There are veterans exempted from this funding fee such as those who are veterans with VA compensation due to a service-connected disability.
Closing costs
Aside from the funding fee, the lender can charge additional fees to close the loan. These closing costs may not be paid upfront. A “no money out of pocket” refinance, the closing costs on an IRRRL can be settled two ways: (i) being rolled into the new loan balance or (ii) the lender will charge a higher rate on the new loan to cover the costs.
Cash-out
The IRRRL does not permit the borrower to receive any cash from the refi transaction.
Lenders may have their own requirements in addition to the guidelines above. Shopping for loans is always the best policy.