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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

  • at a lower interest rate than the existing VA loan, and
  • 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:

  • The IRRRL is refinancing an ARM
  • the term of the IRRRL is shorter than the term of the loan being refinanced, or
  • 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:
  • financing of closing costs
  • financing of up to 2 discount points
  • financing of the funding fee, and/or
  • higher interest rate when an ARM is being refinanced.

If the monthly payment (PITI) increases by 20 percent or more, the lender must
  • 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
  • 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

  • computational errors
  • changes in final payoff figures
  • up-front fees paid for the appraisal and/or credit report that are later added into the loan, and
  • 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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