IRRRL stands for Interest Rate Reduction Refinance Loan. It’s a program under which the VA allows for qualifying borrowers to refinance an existing loan using their VA Loan Guaranty backing.
What’s an IRRRL used for, then? Generally it serves the purpose of allowing a borrower trapped in a loan with unfavorable terms to refinance their loan to better rates. The goal, then, is simply to help borrowers in painful financial agreements to negotiate their way to better terms.
Worth noting, though, is that an IRRRL is meant to serve a specific purpose. If you’re looking to receive cash out from a refinancing arrangement, this isn’t the program for you. IRRRLs don’t require appraisals or credit underwriting. Closing costs can either be paid upfront or rolled into the existing loan package.
Generally – even a refinancing loan, like the IRRRL, requires a borrower to pay the funding fee. However- some exemptions can allow a borrower to escape this funding fee. Most often this is if a veteran is rated with a service-connected disability percentage of 10% or higher. Also, certain surviving spouses (widows/widowers) using a deceased veteran’s eligibility may also qualify for exemption from the funding fee as well.