Through the Interest Rate Reduction Refinance Loan (IRRRL), veterans with existing VA home loans can refinance to lower their rates. Because the VA will offer guaranty for the loan, the refinance must meet VA IRRRL guidelines. Find out what they are below.
VA IRRRL Guidelines
The home securing the new loan must be the same property securing the original loan.
The veteran must own the property securing the loan being refinanced. He/she has the option to presently or previously occupy the home securing the loan. In case a veteran is on active duty and can’t occupy the home, his/her spouse must certify to have presently or previously occupied the home.
The IRRRL requires the new loan to have these characteristics:
- Interest rate. The rate on the new loan must be lower than the original loan rate. There’s an exception if the refinance is from an ARM to a fixed-rate loan.
- Monthly payment. The new loan’s monthly payment: principal + interest is lower than that of the loan being refinanced.
- Loan term. The new loan’s repayment schedule is shorter than the original loan term.
- Type of loan. The new loan is a fixed-rate mortgage with the original loan being an adjustable-rate mortgage.
- Payment increase. An increase in payments is permissible if it is attributed to energy efficiency improvements being done to the home.
- Foreclosure prevention. The new loan has been determined to help avoid imminent foreclosure and that borrower is qualified under relevant credit standards.
The new loan may be equal to the original loan balance and closing costs, and a discount not exceeding 2% of the loan amount.
The refinance loan must not go beyond the existing loan’s repayment term plus 10 years or the maximum loan term set by the law, whichever is shorter. A refinance loan on a manufactured home may exceed its original loan term subject to the maximum loan term provision.
The VA guaranty on the new loan must not exceed the guaranty on the original loan or 25% of the loan, whichever is greater. Veterans can reuse their entitlement under the IRRRL and it does not affect the amount left on the original entitlement.
A lender can submit a delinquent loan i.e. with a monthly payment that is past 30 days, for the VA’s prior approval. The lender’s submission must include reasons for the delinquency, that the cause of delinquency has been corrected, and that the loan qualifies under the relevant credit standards.
Thus, the term “balance of the loan being refinanced” will include any past monthly payments and other late charges as allowed.
If you are contemplating on refinancing your existing VA loan, read through these requirements. And don’t forget to contact a VA-approved lender directly. Lenders operate using VA IRRRL guidelines but they also have their own underwriting standards. Talk to a lender today.»