What are the Limitations of the VA IRRRL?

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The VA’s Interest Rate Reduction Refinance Loan or the IRRRL is one of the best refinance programs in the market. This is made available to veterans and military service members by the Veteran Affairs. The loan is designed to help reduce interest rates with the least out-of-pocket cost.

What is amazing about the VA IRRRL? Aside from fact that it may lower monthly mortgage payments significantly, it does not require any appraisal or credit underwriting. This means, that the refinancing process is quicker. This is also the reason the VA IRRRL is called the ‘VA Streamline’ Refinance Loan.

Moreover, an existing VA adjustable-rate mortgage loans can be refinanced to a fixed-rate loan through the IRRRL. Also, when you choose an IRRRL, they may be no out-of-pocket expense. This is made possible by including all costs of the new loan, the closing cost and the VA can be rolled into the loan. Another option is to have the lender pay for the costs, however, this may mean a higher interest rate.

The VA IRRRL sounds like a really good deal. With the very little verification, speedy loan process and the option to roll the costs into the loan, it is hard to say no to it. With all these advantages, there are also certain limitations a VA borrow need to consider.

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It is a VA-to-VA Refinance

What this means is that a homeowner has to have an existing VA loan to be able to refinance through the VA IRRRL. So if you are a veteran who currently have a mortgage other than a VA mortgage loan and is planning to refinance to a VA loan, the IRRRL is not one of your options.

One alternative would be the VA Cash-out Refinance. Those veterans who have non-VA loans and are planning to refinance into a VA one may take this course. However, this process is not streamlined. You will need to provide all the essential documents and submit them for verification.

You Can’t Avoid the VA Funding Fee

Refinancing your VA loan through the IRRRL does not exempt you from paying the VA funding fee. The funding fee for the first time use is 0.50 percent of the loan amount. If you come to look at it, the VA funding fee is intended to ensure the longevity of the program for the future generations.

You may have this rolled into the loan, including all other costs. If you choose to, this will be added to the loan amount and the interest rate may be applied to the total amount. This may cause the interest to be higher, thus defeating the purpose of refinancing to bring the interest rate down.

You Cannot Receive any Chase Through the IRRRL

If you are looking forward to drawing out money from your home equity through refinancing, then IRRRL is not for you. There is no cash-out in this VA refinance program. It is basically not allowed.

If you want to tap into your equity for some extra money, you have the VA Cash-Out Refinance option. This has a different loan process and a different set of requirements, but in the end, the goal is the same. And that is to reduce the interest.

Knowing both the advantages and the disadvantage of a VA IRRRL will help you decide if this program is right for you. It is best to contact different lenders and shop around. Terms may vary from lender to lender. Shopping will help you find the one with interest and terms that suit your needs.

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