If you are a veteran with a current VA loan, you may be able to refinance it with the VA IRRRL. The VA Interest Rate Reduction Refinance Loan Program makes it easy for veterans to lower their interest rate or change their loan’s term.
Unlike traditional refinance loans, you don’t need an appraisal for the IRRRL program. While this is exciting news, there are some things you should know about the loan’s limitations. In the right situation, the VA IRRRL can be very helpful.
What is the VA IRRRL?
The VA created the streamline VA refinance program or IRRRL to help veterans get the best term on their loans. The VA made it possible for veterans to take advantage of falling rates or to get a different term with very little verification required.
The VA relies on the housing payment history rather than a veteran’s credit score, home value, or even debt ratio. As long as you have made your last 12 housing payments on time, the VA allows you to use the VA IRRRL program.
Why Don’t You Need an Appraisal?
Many people wonder why the VA would allow a refinance that doesn’t require an appraisal. It’s simple. If you have a timely payment history, you prove that you can afford your current VA loan. Since the only thing you can do with the VA IRRRL program is lower your payment or change your term, there’s no need for an appraisal.
The VA IRRRL program doesn’t allow you to tap into your home’s equity. You can’t increase your loan amount at all. Instead, you can only borrow as much as the current outstanding principal balance, plus any closing costs you need to roll into the loan. Lenders are able to use the home’s original value when underwriting the VA loan.
What Else is Required?
Aside from the on-time payment history, the VA requires that veterans benefit from the refinance in some way. Typically, this means that you save money. If you lower your interest rate, for example, you’ll save money.
Some veterans use this chance to refinance from an adjustable rate loan to a fixed rate loan. Getting out of an ARM loan is less risky for lenders, which is another reason they don’t care as much about the appraisal or even your credit. Again, if you have a timely housing payment history, that’s all that they care about.
These guidelines are all that the VA requires, but some lenders may add their own guidelines. Keep in mind that some lenders may require an appraisal. You aren’t required to use those lenders. You aren’t even required to use your current lender. You can shop around with as many lenders as you like until you find the one that offers the guidelines that suit you.
Do you Need a Certificate of Eligibility?
Unlike when you bought your home, you don’t need your COE for the VA IRRRL. The current VA loan number is enough for lenders to be able to refinance your VA loan. You are using the same entitlement that you used for your existing loan because you are paying off that loan with the funds from the new loan.
Do You Need to Live in the Home?
Here’s where the VA IRRRL really comes in handy. The primary residency requirements go away with the VA IRRRL. You don’t have to state that you’ll live in the home. As long as you satisfied the owner-occupancy requirement when you bought the home, you don’t have to satisfy it again with the VA IRRRL.
This is one way veterans end up with more than one VA loan at a time. If you refinance your current home with the VA IRRRL, you can use your remaining entitlement to buy another home. You must prove that you’ll live in the new home that you use the remaining entitlement on, but you don’t have any occupancy requirements with the home you refinanced.
The only caveat is that you need enough entitlement. The VA provides entitlement to have a loan of up to $484,350. If you spend only $200,000 on your first home, you have $284,850 left to buy another home if you decide to do so and after you refinance.
Veterans can refinance their VA loan even if they are upside down on their home or their home lost value. It’s a great way to take advantage of lower rates and save some money. It’s also a great way to eliminate the owner-occupancy requirement if you want to use your remaining entitlement to buy another home with your VA benefit.