Back in the autumn of 2020, we started Movement Military, a new homeownership initiative focusing on the needs of current and former military personnel. At the end of this article, we’ll link to a few associated blog posts for reference.
One of those blogs answered the question, “What is a VA IRRRL loan?” The acronym — which we agree is a little annoying — stands for Veteran’s Affairs-backed Interest Rate Reduction Refinance Loan. And if you need a quick refresher, a VA IRRRL loan is a refinancing tool that replaces an active mortgage initially financed with a VA loan.
In this post, we’ll set the record straight on some lingering myths about VA refinancing and clear up six common misconceptions. Let’s get started.
Misconception #1: “You need a perfect credit score to be approved.”
There’s actually no credit check or appraisal, which streamlines the process. Because you’ve already been approved for a VA loan once, Veterans Affairs does not require an additional credit check or appraisal when you apply for the VA IRRRL refinance.
However, many lenders require an employment verification to guarantee you are still financially stable enough to pay for your mortgage.
Misconception #2: “The VA IRRRL process takes forever.”
Processing a VA IRRRL is actually faster than most refinances. Depending on your unique situation and the way your lender processes their loans, the time it takes to refinance using an IRRRL can vary, that much is true. Refinancing is popular right now, so a busy loan officer or a complicated loan application can certainly bog down the process. In typical cases, though, a VA IRRRL is way faster than most refinances. Some can even close in under a month.
Misconception #3: “I heard I have to use the same lender who did my original loan.”
You don’t need to use the same lender — and you should definitely shop around. While your current lender may be an excellent place to start, many VA-approved lenders offer VA IRRRL loans, including Movement. Like with any mortgage, offers and interest rates will differ from lender to lender, so it makes sense to shop around for your VA loan to make sure you’re getting the best rate.
Misconception #4: “I can’t get cash back with a VA IRRRL.”
Your refinance amount may not be more than the outstanding balance on the existing VA loan, plus allowable fees and closing costs, which may include the funding fee. You are not allowed to receive any additional cash in hand from the loan at closing.
However, you can roll the costs of energy efficiency improvements into the loan and increase the amount borrowed by up to $6000. To do this, you would need to provide the estimates and/or service documentation. Upon closing, the additional funds will be held in an escrow account until the work is completed and an inspection is done. Once verified, the funds will be released.
That said, we also have a VA cash-out refinance option that helps eligible military borrowers refinance their home and tap into built-up equity.
Misconception #5: “I need cash for closing costs.”
It’s possible to close an IRRRL with no out-of-pocket money. The only cost required by the Veterans Affairs is a funding fee of one-half of one percent of the total loan amount. This may be paid in cash or included in the new loan amount.
Always remember, when refinancing your home, the interest rate on the refi loan must be lower than the rate on the original loan. An exception to this rule can be made if you refinance an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
Misconception #6: “I can still refinance even if I missed a payment or two.”
Life happens and you may have missed making a mortgage payment in the past. In that case, your lender may ask you to provide a letter and supply supporting docs to explain the delinquency and prove that it has been resolved.
Of course, you must be ready, willing and able to make on-time payments for the new VA refi loan. It’s up to the Department of Veterans Affairs to make a final determination on whether your IRRRL will be approved.
Still have questions?
Call us to discuss your options. Don’t let any unknowns hold you back from exploring the benefits you’ve earned from your time in the service. A VA-backed Interest Rate Reduction Refinance Loan is one of the simplest and fastest refinances there is.
Rates have been at historic loans over the past few months, so it’s still a great time to take advantage of your VA benefits. Find a loan officer in your area to get started.
Related VA Loan blogs from Movement:
- The nuts and bolts of a VA loan. Read
- What is a VA IRRRL loan? Read
- What is VA loan entitlement in regards to homeownership? Read
- Can a VA loan be used more than once in a lifetime? Read
VA loans: What to know about funding fees and closing costs. Read