The “United States Department of Veterans Affairs” exists to support veterans in their time after service by providing benefits and support. If you needed proof that the VA looks out for our veterans’ best interest when it comes to housing, the IRRRL should be enough evidence. As if the VA-backed purchase loan wasn’t enough, the Interest Rate Reduction Refinancing Loan or IRRRL takes their commitment a step further.
What is a VA IRRRL?
The Interest Rate Reduction Refinancing Loan or IRRRL is often referred to as a “streamline VA Refinance”. This loan can help you lower your monthly payment by lowering the interest rate of your existing VA-backed home loan, if you don't know about the VA-Backed purchase loan, here is a great guide to this benefit. The other benefit this loan provides is for those that have an adjustable-rate loan or ARM. The IRRRL can help stabilize your monthly payment if you’re tired of the rate roller coaster and ready to settle into a fixed-rate loan.
Can the VA IRRRL make a difference?
The IRRRL is a great option for borrowers that are stuck in a higher-interest VA loan. If the interest rate reduction is not enough to lower your payment, the refinance might be pointless. Also, if you initially tried to get a lower interest rate by using an adjustable-rate mortgage or ARM for your home purchase, the IRRRL can help by stabilizing your monthly payment.
Benefits of the IRRRL
Just like the VA-Backed home loan, the VA doesn’t actually loan money, they simply insure the loan which is made by a private lender.
The VA no appraisal or credit underwriting requirements for this loan. The lender you choose to do the refinance with will most likely require an appraisal as well as a credit report.
The lender should be able to use the VA’s email confirmation procedure for this long. This means you won't have to go digging for your Certificate of Eligibility.
The IRRRL can be done with "no money out of pocket" the private lender can roll all of the associated costs into the new loan. The lender can also increase the interest rate to help the lender to cover the costs. If you choose this route, it’s important to remember that the interest rate on the new loan needs to be below the rate on the existing loan. The exception to this is in the event you are refinancing out of an ARM and into a fixed-rate mortgage.
The primary requirement for this loan is that you are refinancing an existing VA loan. This refinance will reuse the portion of your entitlement used to originally purchase the property. While not required, it’s a good idea to show your certificate of eligibility to the lender in order to show your entitlement availability.
IRRRL and the Funding Fee
Just like the VA-Backed purchase loan, the IRRRL has a funding fee. This is a flat 0.5% of the loan amount. Just like the purchase loan, there are exceptions to the funding fee and your Certificate of Eligibility should indicate whether or not you will be required to pay this fee.
If you are required to pay the funding fee, the lender will collect it at closing and send it to the VA via their automated system.
You can either pay the funding fee right out of pocket or choose the more popular option of financing it right into the loan.
If you are interested in a Cash-Out Refinance in order to facilitate repairs or improvements on your home, the VA offers a separate loan product for this purpose. Here is a great guide to the VA Refinance (Non-Streamline).
How to Get an IRRRL
While you aren’t required to use the same lender you used when you originally bought your house, that’s not a bad place to start. Most private lenders that are certified to make VA loans are able to do the Interest Rate Reduction Refinancing Loan. It’s important to note that the only VA-required fee for the IRRRL is the 0.05% funding fee. Any other fees are added by the lender, so it may be in your best interest to shop around for your IRRRL.