At first glance, a VA Loan looks like a fairly straightforward benefit to claim and take advantage of. And for a standard loan, that’s pretty much true. After all, the main point of this benefit is to help veterans purchase their dream homes with confidence and ease. But there are some specific circumstances and types of loans that fall under the wider VA Loan program that are a little more complex. Types that are only of use to certain people in certain situations and take a little extra work to understand. Things like VA IRRRL loans.
If you’ve looked into any sort of VA loan, you’ve probably heard of an IRRRL (the acronym’s commonly pronounced “earl,” if that sounds more familiar to you). We even mentioned it briefly in our comprehensive VA Home Loan Guide. If you’re wondering just what such a loan is and whether or not it applies to your situation, here’s the full scoop.
What is a VA IRRRL
IRRRL stands for Interest Rate Reduction Refinance Loan (so calling it an IRRRL loan is a bit like saying “ATM machine”). These are not so home loans of the sort that allow you to purchase a home in the first place. In fact, to get any kind of IRRRL you need to already have an active home loan on a property you own. These are meant to replace your current loan in order to lower your monthly payments and/or switch your mortgage to a fixed interest rate so as to stabilize your payments. It’s why they’re sometimes referred to as “streamline refinances.”
The basic structure of IRRRLs offered by the VA is the same as ones available to non-veterans. But VA IRRRLs are only available to veterans who have already taken out a VA loan and want to reduce and/or fix the monthly payments on their property. They’re not taken directly through the VA, but through independent lenders and backed by the VA.
Pros and Cons
There are a lot of great reasons to take advantage of a VA IRRRL and make the benefits of your existing VA Home Loan even more manageable. These are the most common:
- Interest rates have dropped since your initial loan and you’d like to get a new loan at the new rate.
- To shorten the term of your loan if you now have the desire and available monthly funds to pay off the loan faster than initially planned.
- If you’ve had a change in marital status and want to add/remove a spouse from the loan paperwork. This also applies to those tragic instances where a spouse passes away, in which case the IRRRL is available to the survivor whether or not they were the veteran initially eligible for the VA Loan.
The only possible thing considered a “con” of an IRRRL is that you just plain might not need one. If you’ve got a good, fixed VA Loan with a low rate, then there’s no reason to go through the process of finding a new lender and doing all the paperwork. Plus, you won’t have to pay the 0.5% funding fee most VA loans require. And while half of one percent of your loan amount may not be a lot of money, there’s no reason to pay it if your current home loan is just fine.
VA IRRRL Guidelines and Eligibility
If you’ve succeeded in getting a VA Loan in the first place, you’re already halfway to a VA IRRRL. After all, you’ve already got your Certificate of Eligibility from your first loan and it’s still good for this one. That said, there are a few further stipulations to keep in mind:
- You can only apply for an IRRRL if the new rate will be lower than your current one. Which is no big deal as there’s not much of a reason to apply if your rate’s already low.
- As with any other home loan, the lender(s) you apply for will check your credit history, so the higher it is the better for you.
- For an initial VA Home Loan, the home you’re buying needs to be your legal residence. For an IRRRL, however, the home can either be your current residence or a prior one. So you can still use it if you’re refinancing, for example, a former home you’re now using as a rental property after you’ve moved elsewhere..
- If you already have a second mortgage, its holder needs to agree to continuing that second mortgage after the IRRRL comes into effect.
IRRRL Application Worksheet
If you’re in the market for a VA IRRRL Loan, there are plenty of great providers out there. Here’s a handy checklist to help you get through the process. Luckily, the steps are pretty few and straightforward:
- Select a lender, ideally from one of the top VA IRRRL Loan lenders on the market.
- Contact your lender.
- Locate the Certificate of Eligibility (COE) from your initial VA Loan
- If you can’t find or lost your COE, have your lender reach out to the VA Home Loan program to get a copy.
- Once your lender has your COE and agrees to provide the IRRRL, follow their instructions from that point on to close the deal and get your new mortgage started.
If you’re looking to improve your current VA Home Loan with a VA IRRRL, the process couldn’t be simpler. And the improvements to your financial situation can be substantial in the right circumstances. So if an IRRRL sounds like the perfect thing to make owning a home easier, then getting one through the VA Home Loan program is probably the best way to do it.