The VA IRRRL program helps you refinance your current loan to either secure a lower interest rate or change the term. No matter your reason for refinancing, the VA is very strict about your maximum loan amount. While the amount might be slightly higher than your current loan amount, it won’t be much higher.
The VA IRRRL program isn’t for a cash-out refinance. It’s strictly to help you restructure your loan so that it’s either more affordable or less risky. In order to determine the loan amount you can borrow, you’ll need to use VA Form 26-8923.
Keep reading to see how to use this form.
Using VA Form 26-8923 to Determine the Maximum Loan Amount
You’ll need to start with the outstanding balance of your current loan. If you plan to add any energy efficient costs to your loan amount, you’ll add that amount to your current loan balance. From that amount, you’ll deduct any money you bring to the table. This isn’t common, but some borrowers pay down the principal balance before they refinance to help them get even further ahead in their investment on their home.
Next you’ll add three fees:
- Origination fee (1% of your loan amount)
- Discount points (2% of your loan amount)
- Funding fee (0.5% of your loan amount)
To this number, you can add the cost of any other allowable closing costs as well as any prepaid items, such as interest.
This subtotal is your new loan amount.
Using this subtotal, you then figure out your new discount points and add it to the subtotal. Next, you subtract the original discount point fee and the funding fee from above. From that subtotal, you figure out your new funding fee amount. This is your final maximum loan amount.
A Real Life Example
Let’s look at an example to see how this would work.
Your current principal balance on your loan is $150,000 and you don’t plan to make any energy efficient changes. You are also not going to bring any cash to the table.
$150,000 x .02 discount points = $3,000
$150,000 x .01 origination points = $1,500
$150,000 x .5% funding fee = $750
Your other allowed closing costs equal $1,500.
The subtotal equals $156,750
Now we figure out the discount points based on the above subtotal.
$156,750 x .02 = $3,135
$156,750 + $3,135 = $159,885
$159,885 – $3,000 = $156,885
$156,885 – $750 (funding fee) = $156,135
$156,135 x 0.5% (funding fee) = $781
$156,135 + $781 = $156,916 – your maximum loan amount
As you can see, the VA doesn’t allow you to add anything except the necessities into your VA IRRRL. This helps to keep you on track with your investment. It also helps VA lenders be able to provide you with loans that they do very little verification to make sure you can afford.
If the VA lender follows the VA’s guidelines, they only need to verify your mortgage payment history. There’s no need for a credit pull, home appraisal, or debt ratio calculation. Of course, you may find some lenders that verify these things just to make sure that you can afford the loan.
Shop around until you find a lender that is able to give you the VA streamline loan you need and take advantage of this great program.