Helpful Tips for an IRRRL

Senior Airman Benjamin Stratton, 5th Bomb Wing public affairs, poses for a photo outside his newly purchased home, May 18, 2010. (Photo: U.S. Air Force)
Senior Airman Benjamin Stratton, 5th Bomb Wing public affairs, poses for a photo outside his newly purchased home, May 18, 2010. (Photo: U.S. Air Force)

Did you know you can refinance a VA loan to lower your interest rate? This is called an Interest Rate Reduction Loan or IRRL.

Here are some helpful tips and things to consider when you are considering an IRRL:

  • Veterans are strongly urged to contact several lenders. There may be big differences in the terms offered by the various lenders you contact.
  • Some lenders may contact you suggesting that they are the only lender with authority to make IRRRLs. Remember, any lender can make an IRRRL.
  • Some lenders may say that VA requires certain closing costs to be charged and included in the loan. Remember – the only cost required by VA is a funding fee of one-half of one percent of the loan amount, which may be paid in cash or included in the loan. And, you may be exempt from paying the funding fee!
  • You cannot receive any cash from the loan proceeds.
  • It must be a VA to VA refinance, and it will reuse the entitlement you originally used. You may have used your entitlement by obtaining a VA loan when you bought your house, or by substituting your eligibility for that of the seller, if you assumed the loan. If you have your Certificate of Eligibility, take it to the lender to show the prior use of your entitlement.
  • The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL you need only certify that you previously occupied it.
  • The loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including funding fee and up to 2 discount points. You may also add up to $6,000 of energy efficiency improvements into the loan.
  • Adding all of these items into your loan may result in a situation in which you owe more than the fair market value of the house and will reduce the benefit of refinancing since your payment will not be lowered as much as it could be. Also, you could have difficulty selling the house for enough to pay off your loan balance.
  • Some lenders offer IRRRLs as an opportunity to reduce the term of your loan from 30 years to 15 years. While this can save you a lot of money in interest over the life of the loan, if the reduction in the interest rate is not at least one percent (two percent is better) and many of new loan costs are rolled into the new loan, you may see a very large increase in your monthly payment.
  • No loan other than the existing VA loan may be paid from the proceeds of an IRRRL. If you have a second mortgage, the holder must agree to subordinate that lien so that your new VA loan will be a first mortgage.

Take the Next Step

If you're ready to move forward, or just want more information, the first step is to get no-obligation rate quotes.

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