The VA IRRRL program is a unique refinance program available only to veterans with a current VA loan. The program allows you to refinance just your current outstanding balance plus any associated costs. In exchange for the strict loan amount requirements, you don’t have to verify your credit score, income, assets, or the value of your home.
That’s right; you don’t need an appraisal for the VA IRRRL.
How Does the VA do It?
It might seem strange – how would the VA be able to offer you a loan on something that they don’t even know the value of? Here’s how it works.
The VA relies on your mortgage payment history. They look at your current VA loan and see how well you paid it. Did you make any late payments in the last 12 months or did you make all of your payments on time? That’s what they want to know.
Next, they require that you benefit from the refinance. The typical benefit is a lower payment. Maybe you can snag a lower interest rate. If not, maybe you can reduce your loan’s term or refinance out of an ARM and into a fixed rate loan. These are all benefits in the VA’s eyes.
This is why the VA doesn’t require an appraisal. If they know you have a timely mortgage payment history and that you benefit from the refinance, they don’t care about the home’s value. If you made your higher mortgage payments on time, chances are you’ll have an easier time making the lower mortgage payments, so the refinance makes sense.
Some Lenders Require an Appraisal
Now what we talked about above pertains to the VA. However, the VA doesn’t underwrite or fund the loans. instead, they have lenders that do so in their name. These VA-approved lenders know the VA’s requirements and they must abide by them. But they can also add lender overlays.
Lender overlays are additional underwriting requirements added by the individual lender. Each lender will have their own requirements, some of which may include an appraisal. This doesn’t happen often and if it does and you are worried about it, you can always find another VA-approved lender.
Some lenders want to know beyond a reasonable doubt that your home is worth enough. In some cases, they only do this when they think the veteran is in trouble or if they have a suspicion that the home values in that area really dropped.
Other Requirements for the VA IRRRL
We told you the requirements for the VA IRRRL above; that’s really all that the VA requires. Again, certain lenders can add their own requirements. For example, many require that they pull your credit. They just want to know what financial state you are in right now. If they pull your credit and see that you have opened a large amount of loans lately and that you have late payments on your debts, it could be a red flag that makes lenders not give you the loan.
Otherwise, the VA doesn’t require anything but the timely mortgage payment history and presence of the net tangible benefit. The VA wants to make sure that you benefit from the refinance and that you aren’t doing it just because it seems like a good idea.
The VA IRRRL can help you save money on your loan and even get ahead by refinancing into a shorter term. Make sure you shop around to find the lender that offers the best rate and terms so that you can make the most out of your refinance.