Interest Rate Reduction Refinancing Loan Tips
An Interest Rate Reduction Refinancing Loan (IRRRL) can be done only when the veteran already has his or her entitlement used for a VA loan on the property to be refinanced. In other words, it must be a VA to VA refinance reusing the veteran-applicant's entitlement.
- The occupancy requirement for an IRRRL is different from the occupancy requirement for other VA loans.The veteran, or spouse of an active-duty servicemember, must certify that he or she previously occupied the property as his or her home. This satisfies the occupancy requirement by certifying to a prior occupancy.
- Always use VA Form 26-8923, IRRRL Worksheet, to calculate the maximum loan amount. Basically, it is the existing VA loan balance plus allowable fees and charges, including not more than 2 discount points, plus the cost of any energy efficient improvements, plus the funding fee.
- No credit information or underwriting is required unless the loan to be refinanced is 30 days or more past due or the monthly payment (PITI) will increase 20 percent or more. A borrower with a recent Chapter 13 bankruptcy may need approval of the trustee for the new loan.
- An interest rate reduction refinance may be done by including all costs in the new loan or by setting theinterest rate on the new loan high enough to enable the lender to pay all loan closing costs. Remember, theprincipal and interest payment must be less than the principal and interest payment of the VA loan being refinanced unless an adjustable rate mortgage is being refinanced by a fixed rate VA IRRRL, the term of the IRRRL is shorter than the term of the previous VA guaranteed loan, or energy efficient improvements are included in the IRRRL.
- No lien other than the existing VA loan may be paid from the proceeds of the IRRRL. It may be necessary that the holder of the second lien subordinate that lien.
- The guaranty on an IRRRL will always be at least 25 percent.
- Any lender, including those without authority to process other VA loans on an automatic basis, may process IRRRL's on an automatic basis as long as the existing loan is not delinquent.
- If the existing loan is delinquent the IRRRL must be submitted for prior approval.