Veterans who have already used their eligibility for a VA loan and want to lower their interest rates or reduce their monthly mortgage payments have the option of pursuing an Interest Rate Reduction Loan (IRRL). This type of loan is also known as a VA to VA loan, or a Streamline loan. Normally, lenders do not require credit checks, home appraisals, or home inspections on these types of loans — which makes these types of loans easy to obtain. There are some important facts homeowners need to know before they consider refinancing their original VA loan with a new IRRL.
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IRRLs can only be used to refinance an existing VA loan. The homeowner cannot receive any personal (e.g. remodeling or other debt repayment) funds from an IRRL. The loan can only be used to refinance their existing VA loan. The original eligibility also must be used in order to qualify for an IRRL.
Any lender can process an IRRL. Homeowners have their choice of lenders when taking out an IRRL. It is recommended by the VA for homeowners to shop around in order to obtain the best interest rates. It’s also a good idea, though, to get a lender who is competent and comfortable writing VA streamline loans. Some lenders may require a credit check, but it is not mandatory unless the new payment is 20% or more above the current payment, or the VA loan is 30 days or more delinquent. Besides these circumstances the only requirement is that the loan is processed through the VA.
The new interest rate must be lower than the original VA loan. In order to qualify for an IRRL, lenders must be able to reduce the interest rate. The exception to this rule is when the homeowner has an adjustable rate mortgage (ARM). In this case the new interest rate is usually higher than the original VA loan.
Homeowners can include closing costs in the new IRRL. IRRLs are typically “no cash down” options, and homeowners can avoid coming up with closing costs by rolling them into the IRRL. The only fee required by the VA is a funding fee. This is one-half of one percent of the loan amount. This can be included in the loan or paid in cash. It should be noted, however this can cause the new loan to be higher than the original VA loan. Homeowners need to weigh this fact when trying to reduce their monthly payments.
Occupancy requirements are different from initial VA loans. In order to satisfy the occupancy requirements for an IRRL, homeowners need only certify that they have been living in the home as their primary residence. This can be done by the service member or their spouse.
An IRRL, VA to VA, or Streamline Loan is a way for veterans to obtain a lower interest rate, and in some cases lower monthly mortgage payments. The VA offers this type of loan, in conjunction with lenders, in an effort to help provide veterans and their families a chance to refinance their mortgages and make their monthly payments more affordable without going through traditional refinancing options. If a veteran has used his or her eligibility and wants to seek a more affordable loan, an IRRL may be an option.