VA Mortgage Refinance (made simple)

VA IRRRL Refinance Loans

The U.S. Department of Veterans Affairs’ Interest Rate Reduction Refinance Loan (IRRRL) helps homeowners refinance their existing VA loans to a lower interest rate loan or to a fixed-rate loan (from an adjustable-rate loan). The goal of the program is to help lower homeowners’ monthly payments or make payments more predictable by fixing the interest rate. Here’s what you need to know about VA IRRRL refinance loans.

Details

You can only use a VA IRRRL to refinance a property that you’ve already taken out a VA loan on; the loan will reuse the entitlement that you already have. Unless you are financing an ARM to a fixed-rate loan, the interest rate on the refinance loan must be lower than your current interest rate.

To get the loan, the VA does not require that you get an appraisal or credit check, but the lender who gives you the loan might want these. You don’t need to bring or reapply for your Certificate of Eligibility; the lender can determine your eligibility via an email from the VA. You cannot use the refinance money to pay down a second mortgage or loan other than the existing VA loan, and you will need to prove that you previously lived in the home to qualify.

You cannot do a cash-out refinance with the IRRRL, but you can take up to $6,000 for improvements that make your home more energy efficient. Plus, you can wrap your upfront costs into the total loan amount so you don’t have to pay money out of pocket when getting the refinance.

Loan Limits

Though the VA does not set a strict upward limit on how much you can borrow for the refinance, the VA limits on how much liability it will assume, which, in turn, affects how much a lender will lend you. Typically, the maximum amount of the loan given will be 100 percent of the appraised value of the home, plus any extra money for energy-efficient home improvements and the VA funding fee. Contact lenders and the VA to see how large of a refinance you might qualify for.

Cost

Though the VA only requires borrowers to pay a funding fee of one-half of 1 percent of the loan amount (this can be paid upfront or wrapped into the loan amount), some lenders will charge additional fees. Because these fees vary, it’s important to shop around for lenders. Note that fees do not have to be paid by veterans receiving money from the VA for a service-related disability (individuals that would be receiving this money if it weren’t for retirement or active duty pay and surviving spouses of veterans who died in service or from a service-related disability).