Refinancing a VA Mortgage: Taking
into consideration the different structural configurations
of the VA Mortgage
The Veterans Administration (VA) has a streamlined mortgage
refinance program very similar to the one used by the FHA.
The VA’s streamlined mortgage refinance loan is often
referred to as IRRRL, which stands for Interest Rate Reduction
Financing Loan. It is also sometimes referred to as a “VA
to VA” loan.
When you apply for an IRRRL loan the VA does not require
an appraisal of the property nor do they require a credit
report on you. As far as the VA is concerned, it doesn’t
matter whether you have a verifiable income and it does not
matter what your past credit history is. The lender making
your VA refinance loan may have different criteria, however,
and may ask for either an appraisal or a credit report on
you – or both.
Be careful of lenders who contact you and say that they are
the only lender authorized to make IRRRL loans. Such lenders
are flat out lying to you should be reported. The truth is
almost any lender can make an IRRRL loan and most lenders
do. Be advised, however that no lender is REQUIRED to make
an IRRL loan.
Be careful, too, of any lender who tells you that the VA
requires certain closing costs to be included in the loan.
That is not entirely true. The VA only requires a funding
fee of one-half of one percent of the amount of the loan.
This fee can be paid in cash by the borrower or may be rolled
into the loan. If any lender suggests anything different you
should be cautious.
Many VA borrowers begin their research into IRRRL loans at
the lender where they currently have their VA mortgage loan.
It is NOT required that you obtain your IRRRL loan from your
current lender; in fact, the VA recommends that you shop around
for your IRRRL loan as different lenders can have very different
terms. A good place to shop for an IRRRL loan is online, where
it is convenient to compare several lenders’ rates and
terms side-by-side in the comfort of your own home.
To qualify for an IRRRL loan you must have already used your
eligibility for a VA loan on the property that you want to
refinance. This is why these loans are sometimes referred
to as “VA to VA” refinance loans. The new loan
will reuse your original entitlement. If you have your Certificate
of Eligibility you may wish to take that to your lender, but
it is not necessary that you have your certificate in hand.
You need not be occupying the property that you are refinancing,
but you must be able to show that you previously occupied
it. If you are refinancing a fixed rate loan then the new
interest rate must be lower than your original interest rate.
However, if you are refinancing an Adjustable Rate Mortgage
(ARM) then the interest rate may increase.
A lender may offer a “No Cash Out Of Pocket”
IRRRL loan simply by including all fees in the loan amount
or by increasing the interest rate of the loan enough to cover
his lending costs. Keep in mind that if the lender increases
the interest rate, the new rate must still be lower than the
old rate (unless you are refinancing an Adjustable Rate Mortgage).
The final requirement is that you must not receive any cash
out of the loan. In other words, an IRRRL loan is merely for
the purpose of reducing your interest rate and monthly payments
or to convert an ARM loan into a fixed-rate loan.
Only your VA loan may be paid off by an IRRRL loan –
if you have a second mortgage that mortgage must not be affected
by your IRRRL loan.
|
