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Home Programs Refinancing IRRL's
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IRRL
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Page 2
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WHAT IS AN IRRL?
An IRRL is a new VA-guaranteed loan made to refinance an existing VA-guaranteed loan( thus VA Streamline
Loan),
generally
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at a lower interest rate than the existing VA
loan, and
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with lower principal and interest payments
than the existing VA loan.
Generally, no appraisal, credit information or
underwriting is required on an IRRL, and any
lender may close an IRRL automatically.
INTEREST RATE DECREASE REQUIREMENT
An IRRRL (which is always fixed rate) must
bear a lower interest rate than the loan it is
refinancing unless the loan it is refinancing
is an Adjustable-Rate Mortgage (ARM).
PAYMENT
DECREASE/INCREASE REQUIREMENTS
The principal and interest payment on an IRRRL
must be less than the principal and interest
payment on the loan being refinanced unless one
of the following exceptions applies:
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The IRRRL is refinancing an ARM
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the term of the IRRRL is shorter than the
term of the loan being refinanced, or
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energy efficiency improvements are included
in the IRRRL
A significant increase in the veteran's monthly
payment may occur with any of these three
exceptions, especially if combined with one or
more of the following:
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financing of closing costs
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financing of up to 2 discount points
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financing of the funding fee, and/or
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higher interest rate when an ARM is being
refinanced.
If the monthly payment (PITI) increases by 20
percent or more, the lender must
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determine that the veteran qualifies for the
new payment from an underwriting standpoint;
such as, determine whether the borrower can
support the proposed shelter expense and
other recurring monthly obligations in light
of income established as stable and reliable,
and
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include a certification that the veteran
qualifies for the new monthly payment which
exceeds the previous payment by 20 percent or
more.
VETERAN'S STATEMENT AND LENDER'S
CERTIFICATION
For all IRRRLs, the veteran must sign a
statement acknowledging the effect of the
refinancing loan on the veteran's loan payments
and interest rate.
The statement must show the interest rate and
monthly payments for the new loan versus that for
the old loan.
If the monthly payment (PITI) increases by 20
percent or more, the lender must include a
certification that the veteran qualifies for the
new monthly payment which exceeds the previous
payment by 20 percent or more.
The veteran's statement may be combined with the
lender's certification.
WHEN CAN THE BORROWER RECEIVE CASH AT
CLOSING?
An IRRRL cannot be used to take equity out of
the property or pay off debts, other than the
VA loan being refinanced. Loan proceeds may
only be applied to paying off the existing VA
loan and to the costs of obtaining or closing
the IRRRL. Therefore, the general rule is that
the borrower cannot receive cash proceeds from
the loan. (If necessary, the refinancing loan
amount must be rounded down to avoid payments
of cash to the veteran.)
The one exception is reimbursement of
the veteran for the cost of energy efficiency
improvements up to $6,000 completed within the
90 days immediately preceding the date of loan
closing.
Note: Use of loan proceeds for energy
efficiency improvements not involving cash
reimbursement of the veteran is also an
option. .
In addition, there are situations which come
about at closing which may result in the
borrower receiving cash. Some examples of
situations for which VA does not object to the
borrower receiving cash are
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computational errors
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changes in final payoff figures
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up-front fees paid for the appraisal and/or
credit report that are later added into the
loan, and
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refund of the escrow balance on the old loan.
This often occurs when a party other than the
present holder originates the loan.
While VA's policy is not to set a "ceiling" or a
specific dollar limitation on cash refunds
resulting from adjustments at closing, if a
situation involves a borrower receiving more than
$500, consult VA as to its acceptability. Lenders
and VA personnel should exercise common sense
when assessing such situations and draw from
basic program information to know the difference
between an equity withdrawal and cash from
unforeseen circumstances.
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