Interest Rate Reduction Refinance Loan

Interest Rate Reduction Renance Loan

Renancing to reduce the interest rate on VA-guaranteed loans

BACKGROUND AND PURPOSE

The U.S. Department of Veterans Affairs’ (VA) Interest

Rate Reduction Renance Loan (IRRRL) generally

lowers the interest rate by renancing an existing VA

home loan. By obtaining a lower interest rate, the

monthly mortgage payment should decrease. Eligible

borrowers can also renance an adjustable-rate mort-

gage (ARM) into a xed-rate mortgage. No additional

charge is made against the veteran’s entitlement

because of a loan for the purpose of an interest rate

reduction. The Veterans’ Disability Compensation and

Housing Benets Amendments of 1980 introduced

the IRRRL program to assist veterans who wished to

take advantage of low interest rates to reduce their

monthly payments.

BORROWER CRITERIA

Income limits: There are no income limits on

this program.

Credit: No credit review is performed.

First-time homebuyers: An IRRRL can only be made to

renance a property on which the borrower has already

used his or her VA loan eligibility so it is not of use to

rst-time homebuyers. It must be a VA-to-VA renance,

and it will reuse the original entitlement.

Occupancy and ownership of other properties: No

loan other than the existing VA loan may be paid from

the proceeds of an IRRRL. The occupancy requirement

for an IRRRL differs from other VA loans. For an IRRRL,

the borrower need only certify that he or she previously

occupied the home. Single-family homes, condomini-

ums, and manufactured homes are all eligible.

Special populations: This program may only be used

by veterans and, in some cases, their spouses. A new

Certicate of Eligibility is not required. Borrowers are

PROGRAM NAME

Interest Rate Reduction Renance Loan Program (IRRRL)

AGENCY

U.S. Department of Veterans Affairs

EXPIRATION DATE

Not Applicable

APPLICATIONS

http://www.benets.va.gov/homeloans/lenders.asp

WEB LINK

http://www.benets.va.gov/homeloans/irrrl.asp

CONTACT

INFORMATION

Lenders interested in participating should contact their local VA ofce, which can be found at

http://www.benets.va.gov/HOMELOANS/contact_rlc_email.asp

APPLICATION PERIOD

Continuous

GEOGRAPHIC SCOPE

National

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not required to show their Certicate of Eligibility to conrm the prior

use of entitlement; an email conrmation procedure is available to lend-

ers in lieu of a Certicate of Eligibility.

Special assistance for persons with disabilities: Veterans with service-

related disabilities are generally exempt from the funding fee (0.5

percent of the loan’s value, or 1 percent for an unafxed manufactured

home).

LOAN CRITERIA

Loan limits: The renanced loan cannot exceed the existing VA loan plus

any nanced funding fee.

Loan-to-value limits: There are no LTV limits set by VA. The new loan

amount may be more than the limits established by the secondary

market. It is the lender’s responsibility to ensure it has a marketable loan.

Adjustable-rate mortgages: Existing VA ARM loans may be renanced

into a xed rate, hybrid ARM, or traditional ARM, but it must bear a lower

interest rate than the loan it is renancing, unless the loan it is renanc-

ing is an ARM.

Down payment sources: No down payment is required; however, an

IRRRL may be done with “no money out of pocket” by including all costs

in the new loan.

Homeownership counseling: Homeownership counseling is

not required.

Mortgage insurance: Mortgage insurance is not required.

Debt-to-income ratio: No credit review is performed.

Temporary interest rate buy downs: Generally not allowed since the

purpose is to lower the interest rate.

Renance: The borrower may not receive any cash from the loan

proceeds for an IRRRL unless it is for the purpose of making energy

efciency improvements.

Interest rates and loan terms: Terms are set by the lender.

Funding fee: The funding fee for an IRRRL is 0.5 percent of the loan’s

value, or 1 percent for an unafxed manufactured home. Funding fees

may be nanced or paid in cash.

POTENTIAL BENEFITS

Lenders can offer existing cus

tomers a product to lower their

payments, which may generate

further business for the bank.

VA loans offer competitive pricing

and terms.

Loans originated through VA may

receive favorable consideration

under the CRA, depending on

the geography or income of the

participating borrowers.

Community banks, as supervised

institutions, receive automatic

authority to originate and close

loans with the VA guarantee,

making VA loans a relatively easy

type of mortgage business to

begin offering.

POTENTIAL CHALLENGES

Despite the ease of becoming a

VA-authorized lender, community

banks may need to acquire or

develop new expertise and infra

structure in order to participate.

A limited pool of borrowers is eli

gible for this program due to the

military service requirement.

Lenders retain risk since they

are responsible for any loss over

25 percent.

IRRRL applications where a bor

rower is more than 30 days late

on a mortgage payment must be

approved directly by VA.

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Potential Benets

• Lenders can offer existing customers a product to

lower their payments, which may generate further

business for the bank.

• VA loans offer competitive pricing and terms.

• Loans originated with VA may receive favor-

able consideration under the CRA, depending

on the geography or income of the participat-

ing borrowers.

• Community banks, as supervised institutions,

receive automatic authority to originate and close

loans with the VA guarantee, making VA loans

a relatively easy type of mortgage business to

begin offering.

Potential Challenges

• Despite the ease of becoming a VA-authorized

lender, community banks may need to acquire or

develop new expertise and infrastructure in order

to participate.

• A limited pool of borrowers is eligible for this pro-

gram due to the military service requirement.

• Lenders retain risk since they are responsible for

any loss over 25 percent.

• IRRRL applications where a borrower is more than

30 days late on a mortgage payment must be

approved directly by VA.

SIMILAR PROGRAMS

• FHA Streamline Renance

• Fannie Mae Re Plus™/Home Affordable Renance

Program (HARP)

• Freddie Mac Relief Renance

/Home Affordable

Renance Program (HARP)

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RESOURCES

Direct access to the following web links can be found at https://www.

fdic.gov/mortgagelending.

General information

http://www.benets.va.gov/homeloans/irrrl.asp

General information on VA home lending programs

http://www.benets.va.gov/homeloans/lenders.asp

Interest Rate Reduction Renance Loan Worksheet (VA Form 26-8923)

http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf

Veteran/Service member’s supplemental application for assistance in acquiring specially adapted

housing (VA Form 26-4555c)

http://www.vba.va.gov/pubs/forms/VBA-26-4555c-ARE.pdf

Verication of VA benets form (VA Form 26-8937)

http://www.vba.va.gov/pubs/forms/VBA-26-8937-ARE.pdf

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