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Homeowners who have received a loan through the VA mortgage program have a great option for refinancing down the road. In fact, veterans may be eligible for a program that the rest of the public can’t access, called the Interest Rate Reduction Refinancing Loan (IRRRL). This is sometimes called the VA Streamline Refinance loan, and it is a simple, fast route to refinancing that the general public cannot use.
Still, it isn’t just a matter of being a veteran to be eligible for this program. There are a few other qualifications that play a part in this process.
An IRRRL can only be made to refinance a property that was originally financed with the borrowers VA loan eligibility. In other words, it must be a VA loan to take advantage of VA refinancing. VA loans are for honored military men and women. Anyone with an FHA-insured mortgage or a Fannie Mae/Freddie Mac-backed loan will not be eligible.
The Department of Veterans Affairs provides detailed information on what it takes to be eligible for an IRRRL refinance, there are a few things that are important to know.
First, a Certificate of Eligibility is not required, although a borrower can consider taking the COE to the lender to show prior use of the veteran’s entitlement. The borrower may have used this entitlement obtaining the VA loan in the first place, or by substituting the eligibility for that of the seller if the loan was assumed by the veteran.
The IRRRL does have an occupancy requirement that is different from other VA loans. In this case, the borrower must show that he or she is currently using, or once used, the home as a primary residence. The borrower must also be current on all mortgage payments and not have more than one 30-day late payment within the last year.
The borrower is only allowed to use the proceeds of an IRRRL on the existing VA loan. No other loan can be paid using this system. If, for example, the borrower has a second mortgage, this refinancing can only be used on the primary/first mortgage.
The VA does, however, allow someone who is refinancing a home this way to add up to $6,000 in energy efficiency improvements. All of these updates must be completed within 90 days of funding. The borrower may not, however, receive any cash from the loan proceeds.
While the VA doesn’t restrict the amount of money that can be borrowed (that’s completely up to the financial institution that is actually making the loan), there are certain limits around how much liability the VA can actually assume. This, in turn, can impact the amount those financial institutions are willing to lend. It is important for veterans to be aware of this before they start the home buying process.
What You Don’t Need for Eligibility
Since the IRRRL program was designed to be a simple and fast process, it bypasses a lot of the standard underwriting processes seen in other types of home loans. This means that someone applying for a Streamline Refinance may not be required to submit bank statements to underwriting or submit paystubs, tax returns, or W-2s.
An IRRRL may be done with no money out of pocket, which means that the veteran can include all the regular costs in the new loan or take a higher interest rate on the refinance to make it possible for the lender to cover the costs. Note that there may be required funding fees.