VA Loans: Who (or What) is IRRRL?

No, this isn't about your old college buddy Earl, or a Web address URL. It's about the VA refinance equivalent of FHA's streamline refinance program. IRRRL stands for interest rate reduction refinance loan. If you currently have a VA home loan and you want to lower your interest rate or convert an adjustable rate mortgage to a fixed rate, an interest rate reduction refinance loan may be an affordable option. Basic eligibility requirements include:

You must refinance from an existing VA loan to a new VA loan.

  • A new VA Certificate of Eligibility (COE) is not required. You can use the COE received for your existing VA loan to verify that you've previously used your VA home loan entitlement.
  • Owner occupancy of the home being refinanced is not required for an IRRRL, but you'll need to certify that you previously occupied the home being refinanced.

Your VA home loan entitlement is subject to review; you must have home loan entitlement under the VA benefits program in order to qualify for an IRRRL. If you don't have your COE from your existing home loan, your new lender can verify eligibility through the VA.

What You Need to Know about IRRRL

The IRRRL program is intended to help veterans with existing VA home loans reduce their mortgage rates or switch a VA adjustable rate mortgage to a fixed rate VA loan.

  • You cannot receive cash out from an IRRRL refinance, and may not use its proceeds to pay off home equity loans or lines of credit. There is another VA refinance program designed to meet these needs.
  • Credit underwriting and property appraisals are not required for an IRRRL.
  • If you have a home equity loan or line of credit, your home equity lender must subordinate its lien so that the refinance loan will maintain position as a first mortgage against your home.
  • You can pay closing costs out-of-pocket, or use the option of rolling allowable closing costs into your IRRRL, which increases your loan amount. You may also accept a higher mortgage rate that allows your lender to pay your closing costs. This option does not increase your loan balance. but it increases the amount of interest you pay over the loan term.
  • If you convert an adjustable rate VA loan to a fixed rate, the interest rate on your fixed rate loan may be higher.

VA Funding Fee Required, or Not

You'll be required to pay a VA funding fee of .5 percent of your loan base amount. This can be paid in cash or financed (added to your base loan amount).

The amount is determined by your military service category and other variables, and is calculated as a percentage of your loan amount. The VA funding fee is waived under certain circumstances:

  • You receive benefits for a service-related disability, or you would qualify to receive such benefits if you were not collecting active duty service pay or retirement pay.
  • You're the surviving spouse of a veteran who died in service or as the result of a service-related disability.

Not all mortgage lenders offer IRRRL refinancing, but you may request an IRRRL from any VA-approved mortgage lender. VA encourages homeowners to shop refinance quotes as mortgage rates, lender fees and loan costs can vary.

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