what it is and how it works

A VA Streamline Refinance, officially known as the VA Interest Rate Reduction Refinance Loan (VA IRRRL), is a unique, simplified, and expedited refinancing option available exclusively to eligible veterans with existing VA-backed home loans. The primary goal is to help veterans secure better loan terms, typically in the form of lower interest rates or a shift from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, without many of the requirements of a typical refinance. This helps veterans save money over the life of the loan.

Unlike traditional refinancing, the VA IRRRL requires minimal documentation. Lenders generally don’t require a new appraisal, credit underwriting package, or income verification, which helps simplify and speed up the process. It does not allow borrowers to take out cash from the equity in their homes. It’s strictly used to refinance an existing VA loan.

pros

• Borrowers can take advantage of lower interest rates in the current market to reduce their monthly mortgage payments.
• The streamlined application and underwriting process make it faster and easier to complete compared to traditional refinancing.
• In most cases, borrowers can skip the appraisal process or income documentation, saving time and money.
• Borrowers are likely to still get approved even if their credit score or overall financial situation has worsened since the time they obtained their initial VA loan.
• Allows financing of VA IRRRL closing costs and VA funding fee with the new loan, which are lower than most other loans anyways, so no upfront out-of-pocket costs need to be paid.
• Borrowers can convert an adjustable-rate VA loan to a new fixed-rate VA loan, which can save thousands of dollars in interest over the life of the loan.

cons

• Only borrowers with an existing VA loan are eligible for a VA streamline refinance.
• While the funding fee for a VA streamline refinance is lower than for a purchase loan, it’s still an additional cost to consider.
• Borrowers cannot take cash out of their home equity with a VA streamline refinance, which may limit its utility for some homeowners.
• Borrowers can only refinance via a VA IRRRL if the new interest rate is lower than the current interest rate. The only exception is if the borrower is switching from a VA ARM loan to a fixed rate loan that may be higher than the ARM rate.
• The U.S. Department of Veterans Affairs has no specific credit underwriting documentation requirements, but lenders are allowed to ask for additional documentation.

Eligibility

In order to be eligible for a VA IRRRL, borrowers must currently have a VA loan that they want to refinance. They also must have a history of making on-time mortgage payments on their existing VA loan. The property being refinanced must have been the borrower’s primary residence at some point. If a borrower has a second mortgage on their home, they will need their mortgage lender to agree to position the new, refinanced VA loan as the first mortgage.

how to get one

1. Contact a VA-Approved Lender: Start by reaching out to a lender who offers VA streamline refinance loans.
2. Submit Application: Complete the necessary paperwork and provide any required documentation to the lender.
3. Underwriting Process: The lender will review your application and verify your eligibility for the VA streamline refinance.
4. Closing: Once approved, necessary paperwork is signed, and the process will be complete.

cost of a va irrrl

Although borrowers will not have to make a down payment or pay for mortgage insurance, and they are guaranteed to have a lower fixed interest rate if refinancing from fixed-rate VA loan, the funding fees and closing costs are still important to understand.

A VA funding fee is paid when a borrower initially applies for a VA home loan as well as for a VA IRRRL. It is only 0.5% of the loan amount. For example, if a borrower is refinancing a $200,000 loan, this fee will be $1,000. This may not have to be paid if a veteran qualifies for disability services through the VA.

Closing costs of this new loan can include recording fees, title insurance, real estate taxes, and other expenses. Most closing costs are typically rolled into the loan. An origination fee of up to 1% of the loan’s value may also be included, depending on the lender. These closing cost fees are generally the same that would be paid for any other type of loan. There are no appraisal fees, and very limited credit report fees, if any at all. A borrower can roughly expect to pay around 2 to 3 percent of the loan amount, in funding fees and closing costs, in total.

is it right for you?

Compare your current interest rate with the rates available for a VA streamline refinance to see if you can secure a lower rate. Consider your long-term financial goals and whether reducing your monthly mortgage payments aligns with those objectives. Evaluate the costs associated with the refinance, including any upfront fees or closing costs, against the potential savings in monthly payments. If a borrower currently has an adjustable-rate mortgage, refinancing to a fixed-rate VA loan can be beneficial to provide more steadiness and security. If a borrower is considering renting out their home, a lower interest rate helps to make the property profitable. A VA IRRRL only requires that the borrower lived in the home at one point.

 

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