Why You Should Get a VA IRRRL
To put it simple, IRRRLs are awesome. This article will go over some of the many reasons why IRRRLs can be such a great idea. Most of the information in this article is taken from the “VA IRRRL: What, Why and how” guide, which contains a near-comprehensive look at everything you need to know about the IRRRL. This article assumes that you have a basic knowledge of what an IRRRL is.
The first benefit of using the IRRRL is apparent just from the name – Interest Rate Reduction Refinance Loan. The VA requires that the new interest rate on the IRRRL be lower than the original loan in most cases. In fact, the IRRRL came into being because the VA wanted to make it as easy as possible for borrowers to refinance when all they wanted was to take advantage of lower interest rates. The only exception to the requirement for a lower interest rate is if the loan being refinanced is an adjustable-rate mortgage (ARM) or a hybrid adjustable-rate mortgage (hybrid ARM). Additionally, the VA requires that the principal and interest payments on the IRRRL be less than the principal and interest payments on the old loan. This typically, but not always, comes by default when the interest rate is lower (for example, an IRRRL with a lower interest rate but also a shorter term may have a larger PITI payment). This requirement is also waived if the loan being refinanced is an ARM.
While great in and of itself, the lower interest rate is just the tip of the iceberg; the IRRRL is chock full of other benefits. Because it’s a streamline refinance option, you save a great deal of time and even money throughout the process. If you refinance with an IRRRL, you (usually) don’t have to get your home re-appraised, you don’t have to get an updated Certificate of Eligibility, and your credit and income qualifications are not subject to nearly as much scrutiny as in a normal refinance. If you felt like the process you went through to purchase your home was complicated and perhaps even frustrating, then refinancing with an IRRRL is the way to go. Normal refinances are usually just as complicated as new purchase loans, and can even be more complicated depending on the circumstances.
The IRRRL was designed with borrowers who may not have much cash-on-hand to pay thousands of dollars in closing costs in mind. The VA IRRRL takes care of this problem by allowing every penny of closing costs to be rolled into the loan amount and paid off month-to-month. Whatever closing costs the borrower cannot or does not wish to pay at closing can be added to the principal amount of the loan and be paid off along with the home. Even better – closing costs can include up to two discount points on the loan, which means you are able to buy a lower interest rate that can save you a great deal of money on the loan.
You can pay for more discount points if you like, though only two can be rolled into the loan amount. As if those advantages aren’t enough, the IRRRL also allows the borrower to take up to an additional $6,000 for energy efficiency improvements to their home. This $6,000 can go to reimburse the veteran for improvements already made or pay for planned improvements. Also, using an IRRRL does not make any additional charge to the veteran’s VA loan entitlement amount – in other words, since the IRRRL is replacing the old loan, even if the resulting loan is for a larger amount than the old loan, no more of your entitlement is used.
IRRRLs have an added benefit of looser occupancy requirements. But before you start dreaming of building your real estate empire, check out the details, directly from the VA Lender’s Handbook:
“For IRRRLs, the veteran or the spouse of an active servicemember must certify that he or she previously occupied the property as his or her home. This is different than the requirement for non-IRRRL VA loans that the veteran must intendto personally occupy the property as his or her home.”
So when does this looser requirement come in handy? Most especially when an active servicemember is deployed or has received a PCS and would like to rent out his or her home while they are away. Otherwise, in order to avoid paying for two dwellings (the house bought with a VA loan and whatever living arrangements are made at the new station), the borrower would have to sell their home. This is certainly not the only situation where the loose occupancy requirement provides benefit, but it is probably the most common. Lastly, most IRRRLs can be approved without the lender having to submit the loan application to the VA for prior approval – further reducing the amount of time it takes to close.