The IRRRL or Interest Rate Reduction Loan refinancing program is a
great option for military people looking to decrease their mortgage’s interest
rates. Not only the program requires minimum documentation, but also allows
borrowers to pay less monthly payments and decrease their total loan term.
However, in order to understand VA loans guidelines comprehensively, when it
comes to refinancing, you need to first study a few elements. Here’s a brief
mention of what you all need to know before refinancing your VA loan.
Interest Rate
The first condition in order to refinance a VA loan is that interest
rate on the new loan must be lower than the existing loan’s interest rate.
Ideally, this figure should be, at least, 1 percent lower than the interest
rate you are already paying on your existing loan.
Cash Proceed and Home Equity
Refinancing a VA loan under the IRRRL scheme curtails you from
utilizing any cash benefits, however, you may take a loan of up to $6000 for
energy efficiency improvements. Given this, if your mortgage is $110,000, you
cannot add on $40,000 for a remodeling project from the home’s equity.
Certificate of Eligibility
In order to apply for a VA loan, you need to first acquire a
certificate of eligibility. This, however, is not the case when refinancing a
VA loan under the IRRRL program. The reason, lenders can automatically receive
confirmation about certificate of eligibility from the U.S. Department of
Veterans Affairs.
Credit Check and Appraisal
Lenders may require everything from a home appraisal, debt-to-income
ratio, income verification and credit check, when refinancing a VA loan. The
U.S. Department of Veterans Affairs, however, does not require any such
documents when refinancing a VA loan under the IRRRL program.
Availability of Refinance
Refinancing under the IRRRL program is only available for people who already have a VA loan. Given this, if you have a conventional or a FHA loan, you cannot refinance a VA loan under IRRRL to get low rate interest benefits.
No Upfront Fees
Though refinancing under the IRRRL accompanies a funding fee not more
than 0.5 percent of your total loan amount, this can also be financed and added
to the total loan balance. Consequently, borrowers are not required to pay any
kind of upfront fee.
Refinance with any Lender
Contrary to common notion, it is not mandatory to refinance your VA
loan from your existing lender. The VA guidelines do not restrict you from seeking
a different lender to refinance your VA loan.
