A reader asks, "I’m in the process of refinancing my house via an IRRRL. Once the process is finalized, I plan on renting the house. Am I eligible to purchase a bigger house with my VA?"
There are two basic questions that need to be answered in situations like these--does the borrower have any VA loan entitlement to use, and if so, could the borrower afford a new home loan AND the existing refinance loan?
Let's examine what VA Pamphlet 26-7 says about VA Interest Rate Reduction Refinance Loans (IRRRLs). "No additional charge is made to the veteran’sentitlementfor an IRRRL; such as, the amount of the veteran’s previously used and available entitlement remains the same before and after obtaining the IRRRL."
That answers question number one--the borrower's use of the original entitlement remains, so one reading of this rule could be that the new IRRRL does not make it possible to restore full entitlement until the IRRRL is paid in full or the home is sold. However, a borrower could use any left over or remaining entitlement on a new VA mortgage in such a situation.
In this case, the second question, "Can the borrower afford the new loan?" becomes the most important issue.
A borrower's debt-to-income ratio would be scrutinized in these cases, to include mortgage payments made on the existing IRRRL. It's not in the scope of this blog post to make that determination for the reader, but it is a factor to consider when evaluating options for a future VA mortgage.
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.
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