VA Rate/Term Refinance
A rate-term refinance is one where the objective is to obtain a better rate and or terms rather than to pull cash out. The VA uses several terms for a rate-term refinance such as Interest Rate Reduction Refinancing Loan (IRRRL), Streamline or, “VA to VA.”
No Closing Cost Option
A rate term refinance may be done with “no money out of pocket” by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.
Eligibility
The VA allows you to do a rate-term refinance only if you have already used your eligibility for a VA loan on the property you intend to refinance. It must be a VA to VA refinance, and it will reuse the entitlement you originally used. You may have used your entitlement by obtaining a VA loan when you bought your house, or by substituting your eligibility for that of the seller, if you assumed the loan.
Occupancy
The occupancy requirement for a rate-term refinance is different from other VA loans. When you originally obtained your VA loan, you certified that you occupied or intended to occupy the home. For a rate-term refinance you need to certify that you previously occupied it.
The new loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including funding fee and up to 2 discount points. You may also add up to $6,000 of energy efficiency improvements into the loan. The VA does not allow you receive any cash from the loan proceeds.
No loan other than the existing VA loan may be paid from the proceeds of a VA rate-term refinance. If you have a second mortgage, the holder must agree to subordinate that lien so that your new VA loan will be a first mortgage.