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What is a VA IRRRL (Streamline Refinance)?
A VA Interest Rate Reduction Refinance Loan (IRRRL), commonly pronounced as "VA earl," offers veterans with existing VA loans an opportunity to refinance. The primary purpose of an IRRRL is to help homeowners secure a lower interest rate on their current VA loan or switch from an adjustable-rate to a fixed-rate mortgage.
This type of refinancing is also known as a VA streamline refinance due to its simplified process. It typically involves less paperwork and can be completed quicker than standard mortgage refinancing options. This streamlined approach is designed to make it easier for veterans to reduce their monthly payments and save on interest without the extensive requirements of a traditional refinance.
VA Streamline IRRRL Requirements:
You may qualify for a VA Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA streamline refinance, if you originally financed your property with a VA loan and can certify that you have either lived in or currently live in the home. This refinancing option is specifically designed for properties originally purchased with VA loans and is not available for veterans with non-VA loans. Those looking to refinance a non-VA loan into a VA loan might consider the VA Cash-Out refinance option instead.
For a VA IRRRL, lenders often have specific criteria regarding the duration of the original mortgage, the number of payments made, and the time needed to recover the costs and fees of refinancing. Unlike many other loan types, VA IRRRLs generally have more lenient requirements concerning employment and income verification. Although a two-year employment history might still be required by some lenders, they usually do not need to verify income or assets unless the new mortgage payment increases by more than 20% or there are significant concerns regarding income stability.
One key feature of the VA streamline refinance is that it only requires previous, not current, occupancy of the home. This is a departure from VA home purchase loans, which require the borrower to intend to occupy the property as their primary residence.
Additionally, the maximum term for an IRRRL is the original term of the VA loan plus an additional 10 years, but cannot exceed 30 years and 32 days in total. For example, if you are refinancing a 15-year VA loan, the longest term you can have on your IRRRL would be 25 years.
VA Streamline Refinance and the VA Funding Fee
The VA funding fee is a one-time upfront charge applied to every VA purchase and refinance loan, including the VA Interest Rate Reduction Refinance Loan (IRRRL). This fee is collected by the Department of Veterans Affairs and is used to cover losses from loans that default, helping to ensure the sustainability of the VA loan program.
One advantage of the IRRRL is that the VA funding fee is relatively lower compared to standard VA purchase and cash-out refinance loans. For those who are not exempt, the funding fee for an IRRRL is only 0.5% of the loan amount. Borrowers have the option to finance this fee by adding it to their overall loan balance, which can ease immediate financial burdens but may increase the total amount paid over the life of the loan due to interest.
Homeowners who are receiving compensation for service-connected disabilities, certain surviving spouses, and other eligible individuals are exempt from paying the funding fee, which can lead to substantial savings.
It's important to consider that while refinancing can reduce your monthly payments or potentially shorten your loan term, it may result in higher overall finance charges throughout the life of the loan. To estimate the cost of your funding fee and evaluate the impact of refinancing, using a VA Funding Fee calculator can be very helpful. Remember to assess all aspects of refinancing to make an informed decision that aligns with your financial goals.
VA IRRRL FAQs
What does IRRRL stand for?
IRRRL stands for Interest Rate Reduction Refinance Loan. It's also referred to as the VA Streamline.
Who can be on an IRRRL?
Generally, the borrowers on the original VA loan need to be on the new IRRRL unless the death or divorce of an applicant occurs. Lenders can not look to remove a currently married or separated spouse from the new loan if they’re obligated on the old one.
How much VA entitlement do I need for an IRRRL?
VA Interest Rate Reduction Refinance Loans (IRRRLs) have a distinctive feature concerning VA loan entitlement. Opting for an IRRRL does not necessitate the use of new or additional entitlement. Essentially, the amount of VA loan entitlement utilized for the original mortgage carries over to the refinanced loan, irrespective of any changes in the loan amount.While the loan amount of an IRRRL may be higher or lower than the original loan, this variation can influence the guaranty amount—the portion the Department of Veterans Affairs guarantees to the lender in case of a borrower default. However, it does not impact the amount of entitlement that a veteran has already used. This aspect of the IRRRL program helps veterans retain their entitlement for future use while still benefiting from improved loan terms, such as a lower interest rate or a switch from an adjustable to a fixed-rate loan, without additional entitlement cost.
Is cash-out allowed with an IRRRL?
Typically, this an IRRRL does not allow borrowers to take cash out. However, there is an exception for energy efficiency improvements.
Veterans can include up to $6,000 in their IRRRL for qualified energy efficiency improvements. These costs must be for improvements that are made within 90 days before the loan's closing date. Examples of qualified improvements might include upgrading HVAC systems, installing solar panels, or improving insulation. This provision is designed to encourage energy conservation and help veterans reduce their utility expenses over time.
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