Deciphering the VA Lender’s Handbook Chapter 6 Part 6
In the previous article, we went into depth about situations where the obligors on a VA loan has changed and the borrower wants to do an IRRRL to refinance the loan. There are many situations where the co-borrowers may change – a veteran may get a divorce, get married (or both), have a falling-out with a non-spouse co-borrower, or something else. Check out the Chapter 6 Part 5 for more details on when you can and cannot conduct an IRRRL. In this article, we’ll be going over a great deal of small tidbits about IRRRLs, all of which are valuable for borrowers to know. This article will wrap up our coverage of IRRRLs in general, but we’ll still have a special case to cover in the next article.
The first thing we’re going to talk about is how the occupancy requirement is different when you’re applying for an IRRRL than when you are applying for a new purchase loan or a normal refinance. Typically, the occupancy requirement is that the VA-eligible borrower is occupying or intending to occupy upon purchase, the property being financed with the VA loan. In an IRRRL, however, the borrower simply needs to certify that he or she previously occupied the property as their primary residence. The Handbook provides the following example: A veteran living in a home purchased with a VA loan is transferred to a duty station overseas. The veteran rents out the home. He/she may refinance the VA loan with an IRRRL based on previous occupancy of the home.
Next, you as the borrower should be aware that your VA loan carries an identification number, and that refinancing using an IRRRL gives your loan a new identification number. Generally, you won’t be required to know or use your loan’s number, but it’s a good thing to have tucked in a filing cabinet just in case.
On a different note, it’s good for you to know that as a streamline refinance option, generally no credit information or underwriting is required on IRRRLs. The exceptions are loans being refinanced that are 30 days or more past due, or when the monthly payment will increase by 20 percent or more. A possible (but not definite) case where credit underwriting may be required is when the borrower has filed a recent Chapter 13 bankruptcy. What further streamlines the process for an IRRRL is that any lender can close on one without prior approval from the VA – even lenders without automatic authority. The only exception to this case is for IRRRLs refinancing a loan 30 days or more past due. There are, however, cases where a lender may feel it is appropriate to submit the loan to the VA for prior approval even though they don’t have to. Your lender will only do this if he or she has a good reason, so trust them and don’t give them a hard time.
As mentioned above, any lender with or without automatic authority can close an IRRRL without prior approval from the VA except for loans that are 30 days or more past due. The lender does, however, have to report the IRRRL to the VA within 60 days of closing. When the lender reports the IRRRL to the VA, they have to include a lot of documents, many of which they will need you to provide or prepare. First, they must submit a VA Form 26-0286 or a VA Loan Summary Sheet. You will likely have seen this sheet and it outlines the new loan being closed by the IRRRL. Next, the lender will need to include your Certificate of Eligibility (COE) or a request for a duplicate COE.
The lender also needs to include the funding fee receipt. You will either have paid the funding fee in full or rolled it into your loan and the lender is paying the cash upfront. Next, the lender will need to provide a document signed by you that states you know and understand the effect that the refinance is going to have on your monthly payments and interest rates. Before you sign this document, make sure you have compared the old and new interest rates, old and new monthly payments, and how long it will take to recoup the closing costs if you have a lower monthly payment. The lender will also submit several worksheets that they can usually generate and fill out on their own.