VA Interest Rate Reduction Refinance Loan (IRRRL)
VA Interest Rate Reduction Refinance Loans offer homeowners who have an existing mortgage that’s insured by the Department of Veterans Affairs an expedited way to refinance into another VA-backed home loan. For qualified homeowners who can save money by refinancing, this is typically the quickest and most affordable way to obtain a new VA mortgage.
(IRRRL mortgages are pronounced “earl mortgages.” They’re also sometimes referred to as “VA streamline refinances” or VA IRRRL refinances.”)
Homeowners Must Meet Three Main Criteria to Qualify
In order to qualify for an IRRRL mortgage, homeowners must meet three criteria.
First, homeowners must have their house financed through an existing VA mortgage. Funds provided through an IRRRL can only be used to pay off an existing VA mortgage, and not any other type of mortgage. (Any second mortgage can’t be paid off with the refinance and must remain a second mortgage.)
Second, homeowners must be applying for another VA mortgage. This is a mortgage that’s underwritten by a private lender but insured by the Department of Veterans Affairs.
Third, homeowners must certify that they have at least previously used the house as their primary residence. Whereas standard VA mortgages require homeowners to currently use the financed house as their primary residence, IRRRL refinances only require homeowners to have previously lived in the house. Of course, currently using it as a primary residence is also acceptable.
IRRRL Mortgages Must Provide Homeowners With a Financial Benefit
In addition to the criteria mentioned above, the actual refinance done through an IRRRL mortgage must provide homeowners with a financial benefit. The financial benefit can be either an interest rate reduction or a lowering of the monthly payments. It must be tangible, though.
IRRRL Mortgages Have Minimal Application Requirements
While the financial benefits offered by an IRRRL mortgage may give sufficient cause to refinance, they don’t necessarily justify refinancing through this program specifically. Instead, the primary reason to refinance specifically through the VA IRRRL program is because the process is so simple.
IRRRL refinances have minimal application requirements, and they may be the easiest home mortgages to apply for. Compared to many other home mortgage applications, IRRRL refinances generally don’t require the following:
- No income verification required
- No credit underwriting process required
- No new appraisal required
By reducing the application requirements, the IRRRL program makes refinancing simpler and faster. It’s also more affordable because there are fewer fees to pay. Homeowners do have to pay a 0.5 percent fee to the Department of Veterans Affairs, but this normally works out to be less than the additional fees associated with other refinancing options. This is known as the VA funding fee. If the veteran receives at least 10% disability from the VA, the VA funding fee is waived.
See VA Funding Fee Table here.
Closing Costs Can Be Rolled Into IRRRL Mortgages
Unlike the Federal Housing Administration’s streamline refinance program, the Department of Veterans Affairs’ streamline refinance program allows homeowners to roll closing costs into their new home loan. If homeowners can’t or don’t want to pay closing costs at the time of refinancing, these can either be included in the new mortgage or covered by the lending institution. (Normally institutions charge higher interest rates if they cover the closing costs.)
Equity Typically Can’t Be Taken Out Via an IRRRL Refinance
Because IRRRL refinance programs are primarily intended to help homeowners save money (either in the form of a lower monthly payment or lower interest rate), these refinancing options usually can’t be used to take equity out of a house. Homeowners who want to refinance so that they can use equity to pay other expenses normally must look to other refinancing options.
There is one exception to this prohibition, however. Homeowners can take out up to $6,000 of equity if the money is used for energy-efficiency upgrades. The exception is allowed because such upgrades should provide additional savings to the homeowner. Depending on the lender, homeowners might have to agree to a home energy audit before they can take out equity for energy-efficiency upgrades.
IRRRL Mortgages Make Sense for Veterans Who Want to Refinance
If you have a VA mortgage and can save money by refinancing, an IRRRL mortgage refinance likely makes sense for you. Check to make sure you qualify for the program, and see what sorts of terms you could get through a new VA home loan.