As a veteran and a homeowner, you’re probably glad that you were able to take advantage of a VA loan. But now that time has passed and circumstances have changed, maybe you’re looking for ways to get more favorable terms on that loan. If so, a VA Interest Rate Reduction Refinance Loan (IRRRL) might be right down your alley. Let’s take a look at how this form of re-financing works, how to qualify for it, and what it can (and can’t) do for veterans.
What You Can Do With an IRRRL
An IRRRL gives veterans a way of refinancing an existing VA loan. If you’re trying to get a lower interest rate or switch to a fixed-rate mortgage, an IRRRL can do that for you in a streamlined, no-fuss manner — including minimal paperwork and (for some) no closing costs or credit score requirements. An IRRRL lets you extend your loan term for up to 10 years, for a maximum term of 30 years and 32 days. You don’t even have to live in the refinanced home as your primary residence. Nor do you have to use any more of your VA entitlement, even if the IRRRL increases your overall loan amount.
Under the right circumstances, you can take cash out from your IRRRL. These circumstances will include non-equity situations such as getting money for energy-efficient home improvements. Your IRRRL may let you take out up to $6,000 in a VA Energy Efficient Mortgage so you can make those changes.
What You Can’t Do With an IRRRL
As magical as an IRRRL may sound for your needs and purposes, keep in mind that this form of loan has its limits as well as its perks. For one thing, you can’t cash out on your equity; you can use the IRRRL loan only to cover your current VA loans and its associated fees. You could also end up having extra paperwork if a death, divorce, or other situation resulted in a different name on the mortgage than before. If that happens, you might have to jump through some new/additional underwriting hoops.
What About Closing Costs?
There’s no free lunch with any loan, and the IRRRL is no exception. Some of the closing costs you’ll pay will be imposed by your individual lender, while others are just part of the general IRRRL picture. you can expect to pay a VA Funding Fee of 0.5 percent unless you have a service-related disability. Your lender may add an origination fee of up to 1 percent (although many do not charge this fee). You may also be charged for title costs, credit reports or other necessary expenses your institution racked up during the approval process.
Are you dealing with past-due fees or other legal issues on your current VA loan? You may be able to get those obstacles out of your way by rolling those fees into your refinanced mortgage account.
Your loan-to-value rate will likely top off at 100 percent. But if you need more financing for solar panels, thermal windows or a more efficient HVAC system, you can always get that extra financing through the VA Energy Efficient Mortgage.
What Does It Take to Qualify?
On balance, there’s a lot to like about an IRRRL. At this point, you may be thinking, “Wow, this is just what I need! How do I qualify?” So let’s take a quick pass through some of the basic steps you may need to take before you can receive your loan (depending on your individual lender):
A minimum score, which may vary from lender to lender
A respectable loan payment history (typically, no late payments in the last 12 months)
Steady employment history and proof of current employment (or other steady sources of income)
Tax records that back up your income statements
A home value appraisal (not required by VA, but some lenders want this)
Home loan age (you may need to have owned the home for 12 months to be eligible for an IRRRL loan)
You may not have to obey all of these requirements. Much depends on factors such as the steadiness of your income and/or whether your monthly mortgage payment will be changing.
Want to learn more about whether an IRRRL loan is right for you? Contact us today and let’s talk about it!