Are you a current or former U.S. military member who took advantage of a Veterans Affairs mortgage – also known as a VA loan – to buy your home? In that case, you can use a VA-Backed Refinancing Loan for Interest Rate Reduction (IRRRL) to make the refinancing quick and easy with very little documentation.
The VA IRRRL (We agree it's a awkward acronym, which is why it's sometimes pronounced "Earl".) You can cut your monthly payment, lower your interest rate, change your terms, or switch from a variable rate to a fixed rate loan.
This loan may also be referred to as "Rationalization Refinance" as the loan insurer will review your loan against most of the documentation from Your first VA loan, such as income and wealth verification.
This article examines what makes refinancing with a VA IRRRL a valuable and exclusive benefit that not many people know how much they know about.
What is a VA IRRRL Loan?
A VA IRRRL is a refinancing instrument that replaces an active mortgage that has already been funded by a VA loan – this is guaranteed by the Department of Veterans Affairs. VA-IRRRLs are only available to veterans and eligible active employees (and in some cases spouses) who are currently making a payout active VA loan. As with the original VA loan, refinancing with a VA IRRRL is not done directly through the VA, but through independent lenders such as Movement. But they are supported by the VA.
VA IRRRL refinancing at a glance
Here is why you might want to switch from a VA loan to a VA IRRRL loan:
- Better interest rate: A VA IRRRL enables the homeowner to take out loans at a reduced interest rate. Because this is a government-secured mortgage, our vets get the lowest interest rate available.
- Flexible terms: A VA IRRRL refinancing does not have to start over with a 30-year mortgage. Borrowers can request a refi that matches wherever they are currently in the repayment schedule, whether it's 29 years, 24 years, 14 years … whatever!
- Low (or no) upfront costs: Since you already have a VA loan on the property, a VA IRRRL does not require any further assessment. And a VA backed streamlining refinance has lower credit benchmarks than a non-VA mortgage. This makes the entire refinancing process faster and cheaper. Additionally, you may be eligible to close the loan without having to pay out of pocket for fees or closing costs.
- For veterans only: Since the Department of Veterans Affairs supports this refinancing product, it will only be used to refinance an existing VA loan on property owned by a veterinarian or an active member of the U.S. military (or surviving spouse).
When does a VA IRRRL make sense for you?
There are many good reasons to apply for a VA IRRRL. If any of these scenarios suit your situation, a VA-IRRRL can make sense for you.
- Interest rates have been going down since you took out your first VA loan and you want to benefit from lower interest rates.
- Now that you have the savings to repay the loan faster than originally planned, you want to shorten the life of your loan so you can own the home in full even sooner.
- You got married (or divorced) and want to add / remove a spouse as a co-owner.
- One spouse has died. In this case, the surviving spouse will still have the refinancing program available, regardless of whether it is the person who originally took out the VA loan.
On the other hand, a VA IRRRL may not make sense to you if you have an active VA loan at a low interest rate. Also, if you stick with your current loan, you won't be able to take on a VA financing fee, which is a required part of any VA back loan. Typically, VA financing fees can be close to half a percent of the total loan amount.
VA IRRRL Eligibility
If you've already received a VA loan, you are almost certainly eligible for a refinance loan to lower the interest rate. However, there are a few key considerations to keep in mind:
- The Certificate of attendance (COE) that you had to get for your first VA loan will still apply to refinance. If you cannot find or have lost your Certificate of Entitlement from your first VA loan, contact your nearest VA branch or regional loan center or reach the VA to get a copy. (Exercise can help you with this step if you need to).
- You can only apply for an IRRRL if the new interest rate is lower than your current one, unless the loan being refinanced is an adjustable rate mortgage (ARM).
- As with any other home loan, your creditworthiness comes into play. And while the credit score on a VA loan is more relaxed than with traditional credit products, you still want to keep your credit score as high as possible as a lower score could slow things down a bit.
- For your initial VA home loanIt was required that the property purchased was your primary residence. This requirement is waived for a VA IRRRL. If you've moved elsewhere but tied the home to your VA loan as a rental property, you can still refinance it using a VA IRRRL.
Ready to Refinance?
Would you like to learn more about the special features of a VA IRRRL? If you're a past or current member of the U.S. military looking to refinance a VA loan, we can help.
Movement Mortgage can answer your eligibility questions, discuss the pros and cons of the IRRRL program, talk about current rate options, and help you make the right decision. Find a loan officer near you to get started.