What is a VA Interest Rate Reduction Refinance Loan (IRRRL)?

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An Interest Rate Reduction Refinance Loan is a VA loan referred to as an IRRRL that makes it possible to refinance an existing VA loan. An IRRRL is only available to qualified VA loan applicants who are already homeowners and who currently have a VA home Loan. This program was introduced in 1980 through The Veterans’ Disability Compensation and Housing Benefits Amendments. When you’re using the Interest Rate Reduction Refinance Loan (IRRRL), you have two options. You can take the mortgage you already have and replace it with a mortgage with a lower VA interest rate. Additionally, you can take the mortgage you already have and convert from an adjustable-rate mortgage to a fixed-rate VA loan. The IRRRL can be used to refinance a manufactured home, condominium, or single-family home. When you’re applying for the IRRRL you must certify that you currently live in or used to live in the loan’s subject property.

The IRRRL is one of the best loans available for Veterans looking to refinance an existing VA loan. Competitive Home Lending is an approved VA mortgage broker that works with the nation’s best VA lenders to help Veterans in Texas and Colorado get a wholesale VA rate with the IRRRL program. Aside from getting a VA IRRRL rate quote, you might have questions about the IRRRL, such as:

• What is a VA IRRRL and how does it work?
• How to qualify for the IRRRL program?
• What are the VA IRRRL guidelines?
• What are the VA IRRRL benefits?
• What are the IRRRL program pros and cons?

An IRRRL is similar to other types of refinancing loans in terms of how it works. With the IRRRL you’re replacing your current VA mortgage loan with a new VA mortgage loan that has better terms for the Veteran. The IRRRL makes it possible to change a VA loan from an adjustable-rate mortgage to a fixed-rate mortgage. As the name states, the IRRRL program also helps to reduce the interest rate from the previous VA loan. 

However, even though the IRRRL is similar in terms of changing the interest rate of your mortgage, there are some differences that make it different from a traditional refinance loan. First of all, the loan amount and financing fees must total to a number that is less than or equal to the amount of the original VA loan. Just as important, the interest and principal payment have to be a lower amount than the original loan—unless it’s an ARM loan you’re refinancing, the IRRRL is being used for improvements that are energy-efficient, or the original loan term is longer than the new refinance term. 

VA IRRRL rarely requires underwriting or credit information. However, do keep in mind that the VA lender you’re working with might require one or both of these. Working with a VA mortgage broker such as Competitive Home Lending gives you a wide selection of VA lenders and access to wholesale VA rates. Additionally, when it comes to the loan-to-value ratio, there’s no maximum—and there aren’t any debt-to-income (DTI) limits. Also, an appraisal is not needed with the VA IRRRL. This makes qualifying for an IRRRL faster and more cost effective than a traditional refinance loan.

When it comes to an IRRRL, a VA funding fee of 0.5% may be required. The funding fee does not impact LTV and can be rolled into the loan. Veterans and surviving spouses receive VA disability are eligible for funding fee exception. Contact Us for your specific VA funding fee requirements and funding fee refunds for a pending VA disability claim. It is helpful to have your Certificate of Eligibility (COE) for entitlement codes. The COE can be found on the VA eBenefits portal. 

Refinance a current VA loan for lower rate

The IRRRL program makes it easy for Veterans to take advantage of lower mortgage rates or swap a retail VA rate for a wholesale VA loan rate.  

Refinance a current VA ARM to fixed rate 

An adjustable-rate mortgage is ideal under certain situations. However, the IRRRL is a simple way to convert an ARM to a fixed rate. Never worry about fluctuating rates and increasing mortgage payments with a fixed rate IRRRL.

Refinance a current VA loan for a shorter term

Situations can change from when a Veteran initial purchased their home. The IRRRL program can be used to shorten a VA loan term for a faster payoff. 

Refinance a current VA loan for a lower payment

A lower rate helps reduce the monthly mortgage payment. However, Veterans can further reduce their VA loan payment by adjusting the loan term with the IRRRL. Talk to our VA loan specialist about extending VA loan terms.

To understand whether getting an IRRRL is right for you, you need to review the IRRRL program pros and cons of this type of streamline refinance loan. One of the pros is that the VA funding fee and any other closing costs associated with the IRRRL can be rolled into the loan. This means that you can avoid paying out-of-pocket costs. Contact Us for a free breakdown of VA loan closing costs. Additionally, the IRRRL is designed to reduce your monthly payment and interest rate. The VA requires the new interest rate on the IRRRL to be lower than the previous rate, and the new loan term cannot exceed the previous VA loan term by more than 10yrs. One of the greatest advantages of the IRRRL is its breakeven requirement. The VA requires that Veteran is able to recoup the cost of the new VA loan within 36 months. The best VA loan lenders waive their underwriting and lender fees for the IRRRL. With minimal VA loan requirements such as LTV, DTI, underwriting, or credit score qualifications, the IRRRL has greater benefits than other refinance options.

As for the disadvantages of the IRRRL, the VA only allows this type of VA streamline loan if the VA applicant is already in possession of a VA loan. This means you can only use the IRRRL to refinance a current VA loan into a new VA loan. Another disadvantage is a six-month seasoning requirement from the closing of the previous VA loan to the new VA loan application date. A minor drawback of the IRRRL loan is limited lenders. VA loan applicants must use a VA approved lender or VA mortgage broker to access any VA loan. Competitive Home Lending is an approved VA mortgage broker with access to wholesale VA rates. 

You might qualify for an IRRRL if you’re a qualifying active-duty service or reserve member, a veteran who already owns a home or a military spouse who has survived the military officer you were married to. If you’re a military officer, then you qualify as one of the following (as long as you haven’t been dishonorably discharged):

• Member of the Reserve and National Guard (after six years of service)
• Member of the Reserve and National Guard (after having been called to active duty)
• Veteran
• Service Member who is in active duty
• Surviving spouse (sometimes)

If you are one of these people and are able to certify that you used to live in, or currently live in the home that has been covered by the VA-backed loan, then you are ready to start the IRRRL process. Note that, if you have a second mortgage on your home, you can’t apply the IRRRL to your second mortgage. It must be applied to the first mortgage you had on your home.

As with any other VA loan, you can only get the IRRRL through an approved VA lender and their authorized wholesale VA mortgage brokers. As an approved wholesale VA mortgage broker, Competitive Home Lending can access the best VA lenders and access wholesale VA rates. One loan application is all you need to shop the nation’s best VA lenders. We can walk you through the VA loan process, ensure you are taking advantage of all the VA loan benefits, and shop for the lowest VA rate. We can even give you a breakdown of the VA loan closing costs prior to committing to the loan process. This will help you shop for the best VA rate without having to contact multiple VA lenders. 

Shopping for the best VA lender can take some time. To start, you have to get in touch with credit unions, mortgage companies, and private banks to shop their VA rates and ask about their lender specific VA loan overlays. However, as a VA mortgage broker, we can filter the VA lenders for you and give you access to wholesale VA mortgage rates. Whether you are looking for a VA loan in Texas or Colorado, Competitive Home Lending can help you navigate through the IRRRL process. We work with the nations best VA lenders and do the VA loan comparison for you. Shopping for a low VA rate, comparing VA loan closing costs, or finding a VA lender that will consider your specific scenario is what we do best. We’re confident that our wholesale VA loan rates are lower than you’ll find through any retail VA lender. Contact Us today or Apply Online to start the VA IRRRL process. 

The next step is to complete the online VA IRRRL application. Completing the online loan application helps to get a clearer picture of the particular items needed for your VA IRRRL. Although some items such as COE, valid government issued identification cards, and proof of homeowner insurance are standard on an IRRRL, evaluating a complete VA mortgage loan application helps us determine whether the IRRRL Non-Credit Qualifying or Credit Qualifying VA loan is the best loan option. After the loan application is complete, our in-house VA loan processor will request a list of items needed to submit your VA loan for review. 

Soon after the IRRRL application is complete, a Loan Estimate (LE) will be sent for review along with other required VA loan documents. It is important to note two things. First, the loan estimate is an estimate as the document states. Second, outside of the Loan Costs in Section A of on page 2 of the Loan Estimate, the rest of the closing costs on the VA IRRRL will be similar from lender to lender. To shop for the lowest cost VA loan, it is wise to focus on VA lender fees from Box A and to compare APR and APY to help you select the best VA loan. Competitive Home Lending is committed to doing everything we can to beat every competitor’s VA loan rate and fees. Our promise is to give our Veterans the lowest cost VA loan and ensure we are making homeownership as affordable as possible. It is our way of thanking our Veterans!

Once your electronic VA loan disclosures have been reviewed and signed, your VA loan can move into processing. Our in-house loan processor will prepare your loan application for lender review. Our goal is to get your VA loan from application to loan funding as quickly as possible with the best chance of final loan approval. Our in-house VA loan processor will keep in close contact throughout the process to ensure speed, accuracy, and ease. 

When it comes to a VA cash-out refinance, the options are different. The IRRRL is meant for interest rate reduction and lower payment. If you need equity from your home for debt consolidation, home improvements, or other financial reasons, talk to our loan officer about the best VA loan options for your financial needs. It is important to note that a VA cash-out loan is available for Colorado Veterans. However, Texas does not allow cash-out on VA loans. Check with a state licensed VA loan officer if you are interested in VA loans in other states. 

The exception to the VA cash-out loan is if you need the funds to make improvements to your home that are energy efficient. Even though you don’t usually get cash-out with an IRRRL, it may be the case if you’re applying for the Energy Improvement Mortgage (EIM). When you get this type of VA refinance loan, you get the cash that can cover improvements in your home that are energy efficient. If you’re going this route, you need to review which changes to your home will qualify first. Be aware that, once you’ve received the loan, you might have someone come into your home to do an energy audit - this usually occurs sometime within the first six months after you’ve received the loan. There are also might be more underwriting requirements than with an ordinary IRRRL. A VA cash-out refinance is not the same as IRRRL. Contact Us if you are inquiring about a VA cash-out in Texas; state restrictions will apply. 

If you still have questions or need more information, schedule a time to talk to our VA mortgage loan officer about the IRRRL program. Competitive Home Lending can help Colorado and Texas Veterans with VA loan financing. Telephone and video conference appointments are available. Email Us directly if you need to schedule a time outside of normal business hours.