The VA IRRRL program allows you to refinance your existing VA loan with very little verification. Lenders do not need to check your credit, income, or employment to qualify for the loan. In fact, they do not even need to verify the value of your home. This means you can be upside down on the loan and still refinance. The lender can use the qualifying factors from your original loan application for the refinance. The one thing they must verify, however, is your mortgage history. If you have more than one 30-day late payment in the last 12 months, you will not be eligible for the program. Once you know you are eligible, the next step is figuring out the max loan amount you can receive. The VA is very strict about what you qualify to receive on this refinance because it is not a cash-out refinance.
The Basics of the Max Loan Amount
The VA makes it every easy to determine your max loan amount on the VA IRRRL. Because the program was designed to help veterans save money, you cannot take money out with this loan. You are able to refinance your outstanding principal balance, plus some select fees. These fees are those that the VA allows, which you can then roll into your loan. The fees you need to concern yourself with include:
- Origination fee
- Discount points
- Funding fee
- Basic closing costs (underwriting, process, closing, etc.)
The things you cannot add to the VA IRRRL include:
- Second mortgage payoffs
- Other debt payoffs
- Cash in hand
- Other fees
In some cases, however, you may be able to add the cost of energy efficient improvements, we will talk about this below.
Starting the Calculation
In order to start the VA IRRRL loan amount calculation, you must know the amount you owe on your mortgage. You can call your existing mortgage company to find out the outstanding principal balance amount. To this amount, you can add up to $6,000 in qualified energy efficiency changes.
To this number, you can then add any points the lender charges. Not every lender will charge points. These figures can come in two forms:
- Discount points – This is a fee you pay in exchange for a lower interest rate. For example, a lender may charge you 1 point to give you a ¼% lower interest rate. It might not sound like a lot, but when you do the math on ¼% savings on $100,000 over 30 years, you can see how much the savings add up.
- Origination fees – These are fees lenders charge to take your loan. If you are a risky borrower, they often add these fees to make a profit up front in case you default on your loan in the future. Luckily, the VA only allows 1 origination point per loan.
Add the Funding Fee
The next step is to add the funding fee to the loan amount. You pay the funding fee every time you take out a new VA loan. The good news is that the fee drops with each subsequent use of the program. For instance, your original VA loan likely cost you 2.15% of the loan amount in a funding fee. When you refinance with the VA IRRRL program, you only have to pay 0.5% of the loan amount. This is a significant difference, saving you quite a bit of money on your refinance.
The Remaining Closing Costs
The last thing you add to the loan amount is the closing costs the lender charges. The VA does oversee these fees, so you know they will not be out of hand. Of course, you can always shop around with different VA approved lenders to see which lender offers the best deal. As was the case with your original VA loan, you can wrap these costs into your new loan amount on the VA IRRRL.
Figuring it All Out
Figuring out the VA IRRRL max loan amount can see confusing. Here is an example to help make it easier for you:
Joe has a current outstanding principal balance of $100,000 on his VA loan. He also has $3,000 in qualified energy efficiency changes. His lender charges 1% discount fee and the total closing costs are $2,500.
Starting off with Joe’s outstanding principal balance, we have a total of $100,000. To this we add the $3,000 in energy efficiency changes. We now have $103,000. His lender charges 1% of this for a discount fee, which equals $1,000. Joe will owe $500 in a funding fee and the closing costs equal $900. The total equals $105,400.
From this amount, you must figure the actual discount point and funding fee. Taking the $105,400, multiply it by 1% for discount point. This equals $1,054. The funding fee is $105,400 x 0.5%, which equals $527. This total equals $106,981. From this amount you subtract the original discount and funding fee. This equals $106,981 – $1,000 – $500 = $105,481. This is your max loan amount.
You can find your own VA IRRRL worksheet online and figure out your max loan amount on your own or you can let the lender do it for you. Know going into the process that you cannot take out any money out of the home. This is strictly to lower your interest rate and/or payment. You must show a benefit to the lender in order to qualify for the loan. The upside of this program is if you qualify and can benefit from it, there is very little you must do to qualify.