Occupancy Requirements for IRRRL

[Renzo D.]

Hi All,

So my wife and I just closed on a refinance for our home, we went from a VA loan to a VA IRRRL, and from 4% to 2.875%. Everything has gone well so far, except for one thing that worries me. The refinance documents state there's an occupancy requirement for the home. I'll quote what the loan document states.

6. Occupancy. Borrower shall occupy, establish, and use the Property as Borrower’s principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower’s principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower’s control.

Is this just boilerplate? Or should I worry about this, as of today I have two days to cancel the refinance.

The loan documents have a form titled "interest rate reduction refinancing loan worksheet", VA Form 26-8923, as well as a form titled "STACKING ORDER FOR INTEREST RATE REDUCTION REFINANCING LOANS (IRRRLs)". But in the loan details section it just states the loan type as "VA".

Lastly, we didn't have to have an appraisal done for this refinance, and the loan officer assures us that it is a VA IRRRL loan.

[Greg Moran]

@Renzo D. Typically, VA loans and the VAIRRRL are for borrowers to buy/refinance their primary residence. I also just went through the IRRRL process for mine and I plan to continue living there. You may run into trouble if you are trying to use your VA loan to purchase rental properties.

[Renzo D.]

@Greg Moran Thanks for the reply. We have lived in this property for 4 years now, and are currently living in it as well. I just want to make sure the mortgage is the correct one, so that we may have the option to rent it in the future if we decide to move.

[Philip Lee]

@Renzo D. I also used an IRRRL, but used it to get out of my VA loan - sounds like you streamlined a lower rate but stayed with the VA loan? In that case, I imagine the VA would require you (as they do when you initially purchase a VA loan property) to occupy for 1 year. If there is a "reason" that you feel you can't fulfill that one year, then you would be able to purchase another property. You could use VA again as there is no limit to VA loan amount anymore and you can use it on multiple properties. My strategy consists of buying with VA, occupy, IRRRL (free VA loan) and repeat. BORR (Buy, Occupy, Refi (IRRRL), Repeat). Hope it helps!

[Upen Patel]

Originally posted by @Philip Lee:

@Renzo D. I also used an IRRRL, but used it to get out of my VA loan - sounds like you streamlined a lower rate but stayed with the VA loan? In that case, I imagine the VA would require you (as they do when you initially purchase a VA loan property) to occupy for 1 year. If there is a "reason" that you feel you can't fulfill that one year, then you would be able to purchase another property. You could use VA again as there is no limit to VA loan amount anymore and you can use it on multiple properties. My strategy consists of buying with VA, occupy, IRRRL (free VA loan) and repeat. BORR (Buy, Occupy, Refi (IRRRL), Repeat). Hope it helps!

IRRRL stands for Interest Rate Reduction Refinancing Loan. Generally speaking this is tied to streamlined refi for government backed loans (VA, FHA, USDA), where you can refi an existing loan into a lower rate without much hassle.

I think what you are referring to is refi from a VA into a conventional (Fannie/Freddie) loan to free up your VA benefit. With the rates going down recently, you might happen to lower your rate, but that is not an IRRRL. Just wanted to clarify.

[Upen Patel]

@Renzo D. @Greg Moran

You can get a streamline refi on a VA (or FHA) loan even if the property is now an investment property. The owner occupancy requirement only applies at the time of original loan issuance.

There might be a rate difference between an owner occupied refi and an investment refi, so you still do need to clarify that on the refi loan application.

[Brian Shanklin Jr]

Good Afternoon,Thank you all for your service, i also currently serve in the Maryland National Guard. Im looking to use the VA loan to create passive income. I have this plan and i would appreciated if you would look it over, and tell me if its possible, and annotate any changes you think would be helpful.

Buy & Hold:

1. Purchase 1st Property with VA Loan (Baltimore area) House Hack.

2. 7 months refi into an IRRRL, for a lower interest rate and change of occupancy (making it no longer my primary residence per the IRRRL stipulation).

3. Use the rest of my VA entitlement to purchase second home ( is the dependent on location? its not a PCs move so how would i justify this in order to use my other entitlement?).

4. I have 20% to cover a conventional loan for third property or should i use an FHA loan to obtain the third house? would a lender not want to work with me due to have 2 mortgages already? (this is contingent based on if i can use the VA entitlement portion for a second home in the same year).

I hope i didn't lose anyone , but this is my business model so far and im all over the place and in need of answers. Thank you.

[Brian Shanklin Jr]

@Renzo D. Can you explain how your doing this BORR method? How can i ensure that the process will work for me in the maryland area. i havent purhcased my first home yet, i will once i get back stateside but this is the method i want to use. Please explain in great detail or message me directly. Need all the help i can get.