Your Guide to VA Interest Rate Reduction Refinance Loans (IRRRLs)
Published: September 24, 2024
Your Guide to VA Interest Rate Reduction Refinance Loans (IRRRLs)
Understanding VA Interest Rate Reduction Refinance Loans (IRRRLs)
If you're a military homeowner with a VA home loan, you may be able to lower your monthly payments through a VA Interest Rate Reduction Refinance Loan (IRRRL).
A VA IRRRL, often called a "VA Streamline Refinance," is a simplified way for veterans to refinance their existing VA-backed home loan. This program allows you to replace your current VA loan with a new one, typically offering a lower interest rate or more stable payment terms.
Below, we’ll outline the benefits you can unlock with an IRRRL, the requirements to meet before you qualify for an IRRRL, and what the process looks like to unlock these savings.
Benefits of a VA IRRRL
With an IRRRL, homeowners can unlock countless benefits to save money both immediately and in the long term. The primary benefit of an IRRRL is to replace your existing mortgage with one that has a lower interest rate, thus lowering your monthly mortgage payment and interest paid over the life of the loan.
Unlike traditional refinances, IRRRLs require very minimal documentation, making the process move a lot quicker than a conventional refi. Homeowners can often get an IRRRL without paying any cash out of pocket by rolling closing costs and fees into the loan balance. This means you’re saving money from your first new payment.
If you bought your home with a VA loan, you’re probably familiar with the VA funding fee. The good news with an IRRRL is that when you refinance, non-exempt borrowers only have to pay a 0.5% funding fee. This fee can also be added to the loan balance, meaning no money out of pocket at closing.
Finally, a VA IRRRL doesn’t use any of your VA loan entitlement, ensuring that you’re set up for success if you have entitlement remaining when the time comes to buy your next home.
How to Know When You’re Ready for an IRRRL
Before you get an IRRRL, you need to check the three boxes outlined below to make sure that you maximize these benefits:
210 Days Since the First Payment on the Original VA Loan
First and foremost, your closing date for your new loan needs to be at least 210 days after you made your first payment on the loan that you’re refinancing, and you must have made at least 6 consecutive monthly payments on that loan. These requirements are set by law to protect you from predatory lending practices.
Qualify for a Rate at Least 0.5% Lower Than Your Current Rate
Second, the interest rate you qualify for needs to be lower than your existing interest rate by at least 0.5%. Refinancing includes additional costs such as closing costs, title fees, and other associated charges. If the interest rate reduction is too small, the monthly savings might not be enough to recover these upfront costs in a reasonable time frame. By waiting for a 0.5% or greater rate reduction, you increase the likelihood that the savings from refinancing will recoup these costs relatively quickly.
Recoup Your IRRRL Costs Within 36 Months
That takes us to the final and most important requirement. To make your IRRRL worthwhile, you need to make sure you recoup these additional costs via your new, lower monthly payment in 36 months. These three requirements act in tandem with each other. Rates take a combination of economic conditions and time to drop by at least 0.5%. The more you reduce your interest rate, the faster you’ll recoup the savings unlocked with your IRRRL.
With all things related to your mortgage, it’s important to work with a Loan Originator who will help you get the most out of your IRRRL and can find a solution that keeps more of your money in your pocket. That takes us right into step 1 of the IRRRL process: working with a loan originator who can guide you through your IRRRL without slamming you with unnecessary added fees.
The IRRRL Process: Streamlined Refinancing
Getting an IRRRL is generally simpler than a regular refinance. Below, we’ll outline the easy, 6-step process for getting an IRRRL:
- Find an experienced VA loan originator: By working with an experienced LO, you will ensure that you’ll receive honest and straightforward financial advice with a personalized IRRRL experience that provides terms that work best for you and you alone.
- Provide basic information: You'll need to certify that you previously occupied the home, but current occupancy isn't required.
- Skip the appraisal: In most cases, no new appraisal is needed for an IRRRL.
- Minimal credit checks: While the VA doesn't require a credit check, some lenders may still request one.
- No income verification: Unlike regular refinances, IRRRLs typically don't require income documentation.
- Close on your new loan: Once approved, you'll sign the new loan documents and start enjoying your lower payments.
Remember, while IRRRLs are designed to be straightforward, you need to ensure that the new loan provides a tangible benefit, such as lower monthly payments or a more stable rate structure.
Taking advantage of a VA IRRRL allows you to save money on your monthly mortgage payments while enjoying a simplified refinancing process. If you're interested in exploring this option, make sure you start with an experienced lender who understands the ins and outs of VA loans to discuss your specific situation and potential savings.