Myths about the VA Streamline Refinance Option: IRRRLs
As is unfortunately the case with much of the VA loan program, there are a number of myths surrounding the VA’s streamline refinance program that cloud judgment and prevent borrowers from taking advantage of the benefits that the IRRRL program has to offer. Most of these myths are easy to dispel, and we’re going to cover several common myths here in this article. If you have any other questions about the Interest Rate Reduction Refinance Loan, consult with a VA-approved lender so you can make sure to get the most accurate answer.
The first myth is a misunderstanding of VA refinancing policy. On a cash-out refinance, borrowers must go through the process of getting their VA loan entitlement restored in order to conduct the refinance. Many borrowers are under the impression that this requirement is also in place for IRRRLs. This is not correct. A borrower looking to refinance his or her VA loan with an IRRRL will not need to have their entitlement restored. This is actually one major benefit of the IRRRL program – the process is much quicker and simpler than for a cash-out refinance. IRRRLs also do not use up any more entitlement above what was already being used by the existing loan. This is an important thing to know for borrowers considering an IRRRL.
Dispelling this next myth will require a little bad news. It is often thought borrowers are able to get cash back on an IRRRL. This myth comes from two possible sources. First, in a normal refinance, a borrower is able to take advantage of equity in their home by getting cash-out for any purpose acceptable to the lender. Second, in an IRRRL, the borrower is able to get an EEM (energy efficiency mortgage) of up to $6,000 for the specific purpose of making energy efficient upgrades to their home. With these two sources of possible confusion, it makes a lot of sense that many borrowers mistakenly think they can get cash-out for any purpose on a VA IRRRL. So if you’re looking to pay off some of your credit cards as part of your refinance, you won’t want to use the IRRRL to refinance. If you’re interested in making your home more energy-efficient however, you are able to do that through an IRRRL.
Here’s some more good news: it is a myth that an IRRRL cannot be used for a loan that is past due, or delinquent. Considering how the IRRRL is intended to be very simple and for borrowers whose situations have not changed too much, it makes sense that this myth would exist. While the process is slightly different and the lender has special considerations to make when processing an IRRRL for a loan that is past due, it is certainly possible to do so, and many a borrower have been rescued, in a sense, by this policy. What’s the catch? The streamline refinance won’t be quite as streamlined. Here’s from the VA Lender’s Handbook:
“Any IRRRL made to refinance a loan that will be 30 days or more past due as of the date of closing, must be submitted for prior approval. The lender must first obtain sufficient information and perform sufficient analysis to determine that the cause of the delinquency has been resolved, and the veteran is willing and able to make the proposed loan payments.”
So for IRRRLs being made for delinquent loans, the loan application will need to be submitted to the VA for prior approval before the lender can close on the loan with you, and you will need to be able to provide sufficient evidence that whatever caused you to be delinquent on your old loan has been taken care of, and that you are able to make the payments on the new loan.
Those are some of the most common misconceptions about the VA Interest Rate Reduction Refinance Loan, but these and any other questions you have can be addressed by contacting an expert on the topic like LowVARates live chat or calling and explaining your specific situation. You can also read up on nearly everything to do with the VA loan program by searching the LowVARates blog or elsewhere on the website.