The VA IRRRL worksheet helps you determine your maximum loan amount for the VA Interest Rate Reduction Refinance Loan. The VA designed this program to help borrowers decrease their interest rate while increasing their disposable income every month. The only thing you have to prove in order to be eligible for the loan is your housing payment history. The VA requires no more than one 30-day late payment during the last 12 months in order to qualify. They do not require lenders to verify your credit score, income, assets or the value of your home. The largest concern aside from the housing history is the maximum loan amount.
Figuring out the Loan Amount
On the VA IRRRL worksheet, you start with the existing loan payoff amount as of the day you plan to close on your new loan. The only addition you can make to this amount is for any allowed energy efficient improvements you will make to the home with the proceeds of the loan. The VA allows up to $6,000 in allowed changes for this loan program.
The next amount you need to concern yourself with is the amount of discount points you agreed to pay the lender. Not every lender charges these points. It depends on your situation and what the lender can afford to provide you. Generally, for every 1 point you pay a lender, your interest rate decreases 0.25 percent. The maximum number of discount points any lender can charge equals 2 percent of your loan amount.
You also need to know how much the lender will charge you in an origination fee. Not every lender charges this fee either. If they do charge it, however, they can only charge 1 point, as that is the maximum amount the VA allows.
The next number you need for the first part of the loan calculation is the funding fee for the VA IRRRL. Every VA loan requires a funding fee. The only exception to the rule is if a disability occurred as a result of your time in the service. In this case, you might be eligible for a discounted fee or even a waiver altogether. In general, however, the funding fee equals 0.5 percent of the loan amount.
The final number you need for your loan calculation is the amount of the closing costs the lender will charge. These charges will vary by lender. The best way to know what you have to pay is to consult the Good Faith Estimate the lender provided you with after you applied for the loan. The good news is that the VA highly regulates the closing costs the lenders can charge you. In this amount, you should include not only the closing costs, but you should subtract any lender credits the lender may provide you.
The total of each of these factors will give you the starting point for your new loan amount on your VA IRRRL.
The Remaining Calculations on the VA IRRRL Worksheet
- Once you have your base loan amount, you need to figure the following calculations.
- Take the total from above, multiply it by the percentage of discount points the lender charges you, and add it to your above loan amount.
- From this amount, subtract the discount points figured in the first subtotal.
- Next, you need to subtract the funding fee figured above and determine the new funding fee based on the above subtotal. Remember, the funding fee is 0.5% of the loan amount.
- When you add the new funding fee to the loan amount you arrive at the total maximum loan amount allowed on the VA IRRRL.
A Real Example
Here is a real example of how to use the VA IRRRL worksheet.
Existing loan payoff: $150,000 – you will not make any energy efficient changes
The lender charges you 2 discount points = $3,000
The lender charges you 1 origination point = $1,500
The funding fee based on the $150,000 payoff = $750
Allowable closing costs = $800
The subtotal = $156,050
From the $156,050 you figure the actual discount points = $3,121
Your subtotal = $159,171
From this subtotal, subtract the above discount fee of $3,000
The new subtotal = $156,171
From this new subtotal subtract the funding fee calculated above = $750
The new subtotal = $156,001
Add the new funding fee 0.5% = $780
The total maximum loan amount = $156,781
The VA IRRRL worksheet walks you through the process very easily. As long as you know the basic figures, including the discount and origination fees, existing loan amount payoff, and the funding fee, you can easily determine your maximum loan amount for a VA IRRRL.