An IRRRL can be done “out of pocket” by including all costs in the new loan. Some lenders may say that the VA requires certain closing costs to be charged and included in the loan. The only cost required by the VA is a funding fee* of ½ percent of the amount of the new loan. For IRRRL, the funding fee is 0.5 percent of the principal amount of the loan, according to the most recent table of funding fees from the VA's IRRRL.
IRRRL borrowers who are not exempt must pay the VA funding fee. The good news is that this fee is significantly lower for an IRRRL (0.5 percent) compared to the loan fee for first and subsequent purchases and refinancing with cash out. When you have a VA loan, you can often refinance it with a VA IRRRL, which is also known as simplified refinancing. This type of refinancing allows you to lower your rate with less paperwork and a faster closing compared to other mortgages.
IRRRLs have closing costs that you may have to pay. However, the VA funding rate is significantly lower for refinancing compared to the rate charged when buying a home. You currently have to pay 0.5% of the loan amount with an IRRRL refinance. Many of these closing costs can also be included in your loan amount.
If you suffered a service-related disability but your disability reward was pending at the time of closing, you may be eligible to receive reimbursement of the VA's IRRRL funding fee. If you decide to apply for a simplified VA loan, you'll find that the VA funding fee is included among the closing costs.