Want to be a hero?
If you are a veteran – or looking to do more business with the veteran market, you should know about this program: The Interest Rate Reduction Refinancing Loan program, or IRRRL.
In a nutshell, it’s just a streamlined, easy-peasey way for people with existing VA mortgages to refinance quickly and cheaply into a new VA mortgage with a lower interest rate. It has minimal underwriting standards and not a lot of paperwork required to put through. The VA doesn’t require any kind of credit underwriting. The program is also called the “streamlined VA” refinance.
And interest rates are at or near rock-bottom levels. I’m seeing advertisements for 3.25 percent for a 30-year fixed. That means its open-season on refinancing deals.
The borrower must be refinancing from a VA mortgage. You can’t use the IRRRL program to refinance from a non-VA loan. Further, the property owner must be VA-eligible. However, the owner does not have to get a brand new certificate of eligibility for the loan. He or she just uses the existing certificate of eligibility from the original loan. In some cases, the borrower may have assumed the loan from a VA-eligible borrower.
- The monthly payment on the new loan must be lower than the original payment.
- The interest rate on the new loan must be lower than the rate on the individual loan – unless the original was an adjustable-rate mortgage.
- The term cannot exceed 360 months, or not longer than 10 years past the original loan (up to 360 months total).
- The loan cannot be greater than the existing balance, plus fees and closing costs allowed by law, plus up to $6,000 of energy efficiency improvements.
- Cash-out refinancing is not allowed. The borrower cannot receive cash from the refinancing.
ARM Terms Available
If the veteran wants an adjustable rate mortgage, he can use the program to refinance into one, according to Matt Britton, of VAMortgage.com, a Baltimore-area mortgage professional who specializes in the VA market. The borrower can get a traditional one-year adjustable, or select a hybrid loan with fixed rates for one, three, five, seven and 10 years. That said, this isn’t a great time to be moving people into ARMs. “No one should be moving into ARMs right now,” says Britton. “There are companies out there that will market VA IRRRL ARMs to veterans like it’s a good idea. We do not.”
The Program Must Benefit the Veteran
The Veterans Administration expects every loan refinanced via the IRRRL program to have a real, tangible benefit to the veteran – most typically, that means a lower monthly payment, though there are exceptions if the original loan was an ARM.
The new loan must retain its senior position. The VA lender underwriting the IRRL loan has to be the senior lienholder. That is, he must be first in line to receive any recovery in case of a default. If there is a second mortgage on the property, the other lender must agree to take a seat behind the VA lender.
Ideal for Rental Property Owners
When a veteran buys a home with a VA loan, he has to certify that he intends to live in the property. This is not the case, though, with a VA-to-VA rollover via the IRRRL program. All the veteran has to certify is that he or she previously lived in the property. It’s perfectly legit to use an IRRRL to refinance a rental, as long as the owner can certify that he or she used to live there.
Lenders: The procedures for ordering an IRRRL within the VA system are available on the Department of Veterans Affairs website. This process will also verify that the borrower has an active VA loan. If there is no loan associated with the veterans’ Social Security number in the VA system, the VA portal will return an error message. If you have trouble, contact the VA Regional Loan Center that has jurisdiction for assistance.