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VA IRRRL – Determining Net Tangible Benefit When Current Loan is a Temporary Buydown
Question:
If a VA loan has a 2/1 Temporary Buydown, can the borrower still do a VA IRRRL and meet the 0.50% lower rate requirement even if the current (temporary) rate is lower than the new IRRRL rate?
Answer:
Yes. You would use the Note Rate when determining if the new IRRRL meets the rate decrease requirement. I confirmed this via email through the VA LGY Help Desk on October 3, 2024. See the full response from VA below.
Additionally, note that the 0.50% decrease in the Note Rate, mentioned in your question, applies only to Cash Out, Type I (Fixed Rate to Fixed Rate, VA-to-VA). For an IRRRL, there must be a reduction in the Note Rate. However, 0.50% is not specified as the minimum decrease requirement for IRRRLs.
Additionally, confirmation of the comparison between the Note Rate and the Buydown Rate can be found in the Net Tangible Benefit Section for Cash Out, Types I and II. From Chapter 8, Topic 3-o:
If the loan being refinanced has a temporary buydown, the note interest rate and full principal and interest (PI) payment should be used to evaluate the net tangible benefit (NTB).
Although the NTB Requirement is not applicable to the IRRRL Program, it stands to reason that it would use the same comparison method of the Note Interest Rate for IRRRLs.
Email Response from the LGY Help Desk – October 3, 2024
Question: When comparing payments and interest rates for a VA fixed-to-fixed IRRRL where the loan being refinanced is currently using a rate created by a temporary buydown, do you use the interest rate and payment based on the full note rate or the current temporary rate of the loan being refinanced when doing the comparison? (I’ve searched Circular 26-19-22 and the exhibits and don’t find guidance for loans still in a temporary buydown period.)
Resolution notes: You would use the full NOTE rate as the comparison.
Supporting Resources:
Subscribers have access to our VA Refinance Chart & Refinances – All Agency Comparison Chart.