You have a VA loan and want to refinance. You heard you could refinance without much work involved. That’s exciting news! Now you want to know if you can increase your loan amount. The answer is – it depends.
You can’t take cash out of the home’s equity. That’s a VA rule. The VA IRRRL, which stands for Interest Rate Reduction Refinance Loan, is to help you lower your payments. The VA wants to make your loan more affordable. This means lowering your interest rate, which lowers your payment. It doesn’t mean taking cash out of the equity.
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However, there’s a few exceptions to the rule. You can include certain closing cost in the loan. This may slightly increase your loan amount. We’ll discuss the exact fees you can include below.
Including Closing Fees in the Loan Amount
The VA is very giving when it comes to their fees. They don’t charge a lot. The fees they do charge, you can include in your loan. This includes:
- The 0.5% funding fee
- Up to 2 discount points (2% of the loan amount)
- Any other allowed closing costs
Keep in mind, you generally don’t need an appraisal or a credit report. However, if you use a lender that requires them, the fees can be rolled into your loan.
These fees may slightly increase your loan amount, but it shouldn’t be enough to raise your payment more than 20%. If your payment does increase more than 20%, you’ll have to fully verify your income and assets to qualify for the loan.
Including Other Fees
You can also include a few other fees in your VA IRRRL. These include:
- Unpaid late charges
- Unpaid late payments (this requires VA approval)
- Accrued interest
These fees may slightly increase your loan amount as well.
Keep in mind, the VA has the final say regarding whether someone with late payments can refinance with this program. The gist of the program is to reward those who have timely mortgage payments with a lower payment. If you have late payments that you never brought current, you may not secure approval for the loan.
Energy Efficiency Changes
There’s one more exception to the rule. If you make energy efficient changes to your home, you may get reimbursed up to $6,000 for energy efficient changes you make to your home. You must have made the changes within the last 90 days before the loan’s closing date. If you didn’t make the changes yet, the lender will disburse the funds for you.
Some lenders require an energy audit before you can make energy efficient changes. This audit determines if the energy efficient changes are worth it. If they won’t save you enough money, the lender may not approve the use of the funds. The lender will need proof to see how much you will save each month on your utility bills. They will then determine if the savings offsets the increase in your mortgage payment.
This is the only exception to the rule when it comes to taking cash out of the home’s equity.
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The Bottom Line
The VA maximizes how much money you can borrow for the VA IRRRL to protect you. They provide the service to help lower your payment and make it more affordable. If you were able to increase the loan amount, it would eliminate the savings.
The VA does allow the addition of closing costs and outstanding payments in the loan, though. With the addition of the cost of energy efficient changes, it offers you the best of both worlds.
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