VA offers two types of refinance loans, the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash Out.
INTEREST RATE REDUCTION REFINANCING LOANS (IRRRL)
A veteran who obtained a VA guaranteed loan may refinance it with another VA guaranteed loan at a lesser interest rate without using additional entitlement.
Note: IRRRLs can only be used to refinance existing VA guaranteed loans.
- The new loan must be at a lesser interest rate than the old VA loan except when refinancing an existing adjustable rate mortgage with a new fixed rate mortgage.
- The dollar amount of guaranty applicable to the prior VA loan is transferred to the new loan.
- The minimum guaranty on an IRRRL is 25%.
- If the existing loan is delinquent, the IRRRL must be submitted to VA for prior approval.
- Although no underwriting is required, approval of new credit may be required by the trustee in a Chapter 13 bankruptcy.
- No appraisal is required.
- The veteran may not obtain cash proceeds.
- No portion of the loan proceeds may be used to pay off other debts.
- The new loan is limited to the balance of the old loan, the funding fee, up to $6,000 of energy efficient improvements, and allowable closing costs including not more than 2 discount points.
- The term of an IRRRL may not exceed the original term of the loan being refinanced by more than 10 years.
- The veteran, including active-duty service members stationed elsewhere, is able to satisfy the occupancy requirement by certifying prior occupancy.
- If the veteran whose entitlement was previously used has died, and the surviving spouse was a co-obligor, that spouse is considered a veteran for the purpose of the IRRRL.
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Interest Rate Reduction Refinancing Loans (IRRRLs) were first authorized in 1980.
CASH OUT REFINANCING LOANS
The loan is limited to 90%* of the amount of the Certificate of Reasonable Value, plus the funding fee and the cost of any energy efficient improvements up to $6,000.
- A cash-out loan may be made to refinance the outstanding balance of an existing mortgage, but can also include other debts (the first mortgage must be included in the refinance).
- The veteran can receive cash proceeds from the loan for any purpose acceptable to the lender.
- Existing mortgage loans or other liens of record may be refinanced whether they are in a current or delinquent status, but refinancing loans are subject to the same income and credit requirements as regular home loans.
Note: The maximum guaranty on VA Cash Out refinance loans is $36,000.
*The maximum loan amount is limited to 80% in the state of Texas if the borrower receives cash proceeds.