Veterans can refinance their VA loan without proof of their credit, income, assets, or home value. It’s called the VA IRRRL program. It’s a great program that allows veterans to secure a more affordable loan. But there are strict requirements regarding what you can and cannot include in the loan amount.
Keep reading to learn what you can include in your VA IRRRL.
The Outstanding Principal Balance
The majority of your new VA IRRRL is the outstanding principal balance on your VA loan. You prove this by asking your current lender for a payoff amount. The VA IRRRL will pay off this loan and start a new loan for you. Knowing the full amount due including any unpaid interest will help you get a good starting point for your new loan amount.
Energy Efficient Changes
The VA IRRRL program does not allow you to take any cash out of your home’s equity. But, there’s one exception. You can make energy efficient changes to your home and include it in the loan. You can include up to $6,000 in changes. However, the lender must approve them.
Generally, you’ll need an energy audit to prove that the changes will have an effect on the cost of your utilities. If the changes won’t lower your utility bills enough, it may not be worth rolling the costs into your loan. Remember, even rolling $6,000 into your loan can increase your mortgage costs significantly since you’ll pay interest on that amount for the next 30 years.
Allowable Closing Costs
The VA allows certain closing costs on a VA IRRRL. If the lender charges any of these fees, you can include them in your loan amount. The most common closing costs include:
- Origination fee up to 1% of the loan amount
- Discount fee up to 2% of the loan amount
- Prepaid interest, insurance, or taxes
- Title fees
- Flood determination fees
Please note, if a lender charges you an origination fee, they cannot charge an application, processing, document, lock-in, or closing fee. They also cannot itemize any notary, tax service, or trustee’s fees. These fees would be rolled into the 1% origination fee.
VA Funding Fee
The final cost you can roll into your VA IRRRL loan amount is the VA funding fee. You pay this fee every time you use your VA loan benefit. Luckily with a VA IRRRL, you only pay a fraction of what you paid for your original VA loan. Today, the VA funding fee is 0.5% of the loan amount. When you bought your home, chances are that you paid 2.15% of the loan amount.
With these numbers, you can then complete VA Form 26-8923, which will give you the maximum VA loan amount you can borrow. The VA does not have a maximum loan amount across the board. This is unlike loans like the conventional loan, which maximizes loans at $424,100 in most areas. You must use the worksheet to determine how much you can borrow. This is how the VA ensures you don’t borrow any money out of the equity of your home. The VA IRRRL is strictly to get you a loan with more favorable terms or a lower payment.