VA Loan Answers: Interest Rate Reduction Refinance Loans
The VA Interest Rate Reduction Refinance Loan or IRRRL is a non-cash out refinance option for existing VA mortgages. Though a borrower cannot refinance a conventional or FHA loan with a VA IRRRL, those who have VA mortgages often find this interest/mortgage payment reducing refinance loan quite helpful when it’s time to make additional room in a monthly budget.
What does the borrower need to know about VA IRRRLs?
As previously mentioned, they feature no cash back to the borrower, and can be processed as “Streamline” loans, which means that in many cases no additional underwriting or appraisal may be required.
Some borrowers misinterpret that to mean that there is no appraisal or credit check ALLOWED with a VA IRRRL, but what’s the reality? According to VA Pamphlet 26-7, “Although VA does not require an appraisal or credit underwriting on IRRRLs, any customary and reasonable credit report or appraisal expense incurred by a lender to satisfy its lending requirements may be charged to the borrower and included in the loan.”
That last part of the sentence is important to remember. Appraisal expenses and credit report charges could be included in the loan amount according to the VA rules. In such cases, the VA also adds a caveat:
“The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs, as long as the requirements for lower interest rate and payments (or one of the exceptions to those requirements) are met.”
Some borrowers wonder if they can get a VA IRRRL the refinance a VA loan that is past due. This can be done, and the Department of Veterans Affairs has issued the following guidance about such loans. “For IRRRLs to refinance loans 30 days or more past due (which must be submitted for prior approval), the following can be included in the new loan:
- Late payments and late charges on the old loan, and
- Reasonable costs if legal action to terminate the old loan has commenced.”
If you need more information on refinancing a current or past due VA mortgage to an Interest Rate Reduction Refinance Loan, speak to a loan officer or contact the Department of Veterans Affairs.
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.