Requirements for a VA Refinance

By Gilberto Fuentes

Veterans who want to refinance specifically in order to obtain a lower mortgage interest rate have the option to do so through the Interest Rate Reduction Refinancing Loan. The IRRRL is a mortgage refinancing program sponsored by the U.S. Department of Veterans Affairs. However, this is only one option for veterans, and other private lenders may offer more favorable refinancing terms. Basic requirements are necessary to obtain a VA refinance.

Eligibility for a VA refinance with the IRRRL is open to all veterans whose mortgage payments are current and the mortgage is originally insured by the VA. Since veteran status is established when the VA mortgage is originated, proof of veteran status is not necessary for an IRRRL. According to the VA, refinancing lenders can obtain verification of veteran status from a separate email confirmation process.

The VA does not directly refinance VA mortgages and instead insures refinanced mortgages through approved banks that participate in the IRRRL program. The VA encourages banks to make IRRRL loans by insuring refinanced mortgages against losses if the homeowner forecloses on the home. In addition, IRRRL lenders are required to follow certain rules to help veterans obtain and qualify for the refinancing. For example, the VA limits the types of closing costs veterans pay. For example, the VA only requires a 1.5 percent funding fee of the amount of the loan. In addition, some of the allowable closing fees include the VA funding fee, discount points and prepaid insurance and taxes. Compare and negotiate the fees each potential IRRRL lender charges to obtain refinancing with the lowest costs.

The main purpose of the IRRRL program is to allow veterans an opportunity to refinance specifically to secure a lower interest rate. Veterans are not allowed to refinance with the IRRRL if the refinanced mortgage results in a higher interest rate. The lower rate is helpful to reduce the amount of monthly mortgage payments. However, the VA cautions that refinancing may increase the long-term cost of home ownership by increasing the amount of time veterans pay principal and interest.

Veterans who own a home and wish to refinance with the IRRRL program through the VA are not required to meet credit requirements. However, some lenders may require veteran borrowers to meet certain credit standards. The VA does not prohibit lenders from evaluating the credit report of veteran borrowers. Banks may conduct additional credit evaluation to determine the riskiness of veteran borrowers. The bank may impose a higher interest rate if the veteran is a risky borrower.

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