Many people turn to interest rate reduction refinance loans (IRRRL) when they need to reduce the mortgage payments of their current VA-home loan. This type of loan also helps make your payments more stable.
If you’re considering refinancing your current VA-backed mortgage, you might be eligible for an IRRRL – interest rate reduction refinance loan. Do you meet the requirements? We’ve got all the information you need to know about how to qualify for an IRRRL.
Who Can Get an IRRRL?
Interest rate reduction refinances loans are only available to homeowners that have a current Veterans Administration (VA) loan. These loans are given out to veterans, active-duty and some reserves, and surviving military spouses.
It is purely for refinancing purposes. This kind of loan also requires you to have a valid Certificate of Eligibility (COE).
Another point of interest to take into consideration is that you can only use this type of loan to refinance a home where you are residing.
In some cases, you might have to show proof that you are living in the home before a VA IRRRL can be approved.
Why Get an IRRRL?
Many people turn to IRRRLs to help them get their mortgage payments to a more manageable monthly amount. They’re also used to switch from an adjustable-rate mortgage – interest rates changes with time – to a fixed-rate mortgage – the same interest rates throughout the entire loan.
Often referred to as streamline financing, an interest rate reduction refinances loan will take the place of your current VA loan. Your future payments will go to the lender of your IRRRL rather than your VA lender. This will be a VA to VA loan.
IRRRL loans can have fixed, adjustable-rate mortgage or hybrid adjustable-rate mortgage interest rates. There usually isn’t income limits or credit requirements as you’d find with most refinancing lenders, so it’s easier to get an IRRRL.
Benefits of an IRRRL
One of the great things about IRRRLs is that there aren’t a lot of requirements. Homeowners with a current VA mortgage can apply for an IRRRL, even if they don’t have good credit or a lot of income. It’s an excellent refinancing solution for lower-income families.
Another benefit of IRRRLs is that you don’t need a down payment to be approved. But, you often do have to pay the VA Funding Fee, which is about 0.5%.
A positive difference between IRRR loans and other refinancing options is that homeowners aren’t required to complete homeownership counseling or purchase mortgage insurance.
Down Sides of IRRRLs
As we’ve mentioned, IRRRLs can only be given to homeowners who currently have VA loans. If your mortgage is through a private lender, an IRRRL won’t work for you. And unfortunately, you can only apply for these types of loans through approved lenders.
A downside that many people dislike about interest rate reduction refinance loans is that there are no cash-out options. If you want to have money that you could spend to remodel your home, you’ll be out of luck with this loan type.
With that being said, you can sometimes get funding for energy efficiency upgrades using your IRRRL.
Steps to Get an IRRRL
Many homeowners find it easier to get an IRRR loan than other sources of mortgage refinancing because there are fewer standards to meet. The steps to apply for an interest rate reduction refinance loans are as follows.
Step 1: Find your lender
When you’re looking for IRRRLs, the first step is to do some shopping around to check the rates of different lenders.
You’ll often get an IRRRL through a mortgage company, credit union, or private bank. Fees will be different for each institution, so you want to make sure you get the best rates.
Step 2: Provide the Necessary Information
To be approved for an IRRRL, your lender will need some information, starting with your Certificate of Eligibility (COE).
If you don’t have a copy, your lender can obtain one from the VA Home Loan program portal. You will have used your COE when you got your original VA-loan.
Step 3: Complete closing steps and pay costs
When using an IRRRL loan, you’re usually required to pay the VA funding fee, which is a one-time cost. Paying this fee lowers the cost of the loan. You’ll also owe interest on the loan. IRRRLs allow you to include these costs as part of your loan, so you don’t end up having to pay fees upfront.
Is An IRRRL Right for You?
Now that we’ve given you a breakdown of an interest rate reduction refinance loan, it’s time to find out if it is the right type of loan for your needs. Assess your financial situation and see if you qualify for a streamline refinance option like an IRRR loan.