What is a VA IRRRL loan?
Are you a current or former US military member who took advantage of the benefits of a Veterans Affairs mortgage — aka VA loan — to purchase your home? If so, you can use a VA-backed Interest Rate Reduction Refinance Loan (IRRRL) to refinance quickly and easily and with very little documentation to pull together.
The VA IRRRL (we agree, it's a cumbersome acronym, which is why it's sometimes pronounced “earl”) can lower your monthly payment, reduce your interest rate, change your terms or move you from an adjustable to a fixed-rate loan.
You may also hear this loan referred to as a “streamline refinance” because the loan underwriter reviews your loan using much of the paperwork from your initial VA loan, like income and asset verification.
This article will look at what makes refinancing with a VA IRRRL a valuable and exclusive benefit that not many people know how much about.
What is a VA IRRRL loan?
A VA IRRRL is a refinancing tool that replaces an active mortgage already financed via a VA loan — that's one that is guaranteed by the Department of Veterans Affairs. VA IRRRLs are only available to veterans and eligible active-duty personnel (and spouses in some cases) who are currently paying off an active VA loan. As with the original VA loan, a refinance with a VA IRRRL is not provided directly through the VA, but through independent lenders like Movement. But they are backed 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 allows the homeowner to borrow at a reduced interest rate, and since it's a government-backed mortgage, our vets get the lowest interest rate available.
- Flexible terms: With a VA IRRRL refinance there is no need to start over with a 30-year mortgage. Borrowers can request a refi that matches wherever they're currently at on the amortization schedule, whether it's 29 years, 24 years, 14 years…whatever!
- Low (or no) upfront cost: Since you already have a VA loan on the property, a VA IRRRL doesn't require another appraisal. And a VA-backed streamline refinance has lower credit history benchmarks than a non-VA mortgage. This makes the whole refinance process quicker and less expensive. Plus, you may be eligible to close the loan without having to pay any money out-of-pocket in fees or closing costs.
- Veterans only: Because the Department of Veterans Affairs backs this refinancing product, it's only used to refinance an existing VA loan on a property owned by a vet or active-duty member of the US military (or a surviving spouse).
When does a VA IRRRL make sense for you?
There are many excellent reasons to apply for a VA IRRRL. If any of these scenarios fit your situation, a VA IRRRL might make sense for you.
- Interest rates have fallen since you closed on your initial VA loan, and you'd like to take advantage of lower rates.
- Now that you have available savings to pay off the loan faster than you initially planned, you'd like to shorten the term of your loan so you can own the home outright even sooner.
- You've gotten married (or divorced), and you want to add/remove a spouse as a co-owner.
- A spouse has passed away, in which case the refinancing program is still available to the surviving spouse regardless of whether they are the person who initially took out the VA loan.
On the other hand, a VA IRRRL may not make sense for you if you have an active VA loan at a low rate. Staying with your current loan will also keep you from taking on a VA funding fee that's a required part of every VA-back loan. Typically, VA funding fees can be in the neighborhood of one half of one percent of the total loan amount.
VA IRRRL eligibility
If you've already secured a VA loan, you're almost certainly eligible for an Interest Rate Reduction Refinance Loan. But there are a few key considerations to keep top-of-mind:
- The Certificate of Eligibility (COE) you had to obtain for your initial VA loan is still valid for the refinance. If you can't find or have lost your Certificate of Eligibility from your initial VA loan, contact your nearest VA field office or regional loan center or reach out to the VA to get a copy. (Movement can help you with this step if you require).
- You can only apply for an IRRRL if the new rate is lower than your current one, unless the loan it is refinancing is an adjustable rate mortgage (ARM).
- As with any other home loan, your credit history comes into play. And although credit standing is more relaxed with a VA loan than with conventional loan 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 loan, it was required that the property purchased was your primary legal residence. For a VA IRRRL, that requirement is lifted. If you've moved elsewhere but have kept the house tied to your VA loan as a rental property, you can still refinance with a VA IRRRL.
Ready to refinance?
Want to know more about the ins-and-outs of a VA IRRRL? If you're a past or present member of the US military looking to refinance a VA loan, we can help.
Movement Mortgage can answer your questions about eligibility, discuss IRRRL program pros and cons, talk about current rate options and help you make the right decision. Find a loan officer in your area to get started.