If you already have a VA-backed home loan and want to lower your monthly mortgage payments or make them more consistent, consider an interest rate reduction refinance loan (IRRRL). This option allows you to swap your current loan for a new one with changed terms. Check if you qualify and learn how to apply.

 

What's a VA IRRRL?

A VA IRRRL, also known as a VA Streamline, means the same thing. "Streamline" basically says it's a quicker and easier way to refinance compared to other methods.

VA Streamlines allow you to change from a variable-rate mortgage to a fixed-rate one, reduce your monthly interest rate, or alter your repayment term. You need to already have a VA loan to do a VA Streamline. If you want cash from your home equity, you must do the full VA cash-out refinance process.

 

How Does a VA Streamline Refinance Work?

When you hear "streamline," it means making the refinance process simpler and cheaper. Unlike a full refinance, which repeats the steps taken when buying a home—like a new appraisal, title search, and recording fees—a streamlined process skips some of these.

In a streamlined refinance, there's usually no new appraisal, and the underwriting process is made easier. While your lender might need a minimum credit score and job verification, the VA doesn't always require these. If you're keeping up with mortgage payments, you'll likely get approval for a streamlined loan.

However, you'll still need a new title search and buy a new title insurance policy for the lender. The streamlined approach is fast, and you can often add the closing costs to the new loan.

The VA allows a VA Streamline refinance only if it immediately benefits you financially, like getting a lower interest rate or reducing your monthly payment. You can't refinance just because you dislike your current lender—it has to affect your finances directly.

 

Pros and Cons of a VA IRRRL

In most cases, you'll be able to secure one of the lowest interest rates by securing an IRRRL. While it's important to research current mortgage rates and compare several lenders to find the best IRRRL rate available, you should also consider the pros and cons of a VA IRRRL.

Pros

The VA Streamline refinance program has many advantages compared to other refinance choices.

• Reduced Interest Rate

Many veterans and their families choose to refinance their VA loans to secure a lower interest rate. The VA prefers borrowers seeking a VA IRL to aim for a lower interest rate than their original mortgage, except in cases where the loan being refinanced is an ARM.

• Decreased Monthly Payments

Refinancing through a VA Streamline often leads to lower monthly payments. This reduction can occur by extending the loan term, giving more time to repay the mortgage. A lower interest rate can decrease monthly fees if the loan duration remains unchanged.

• Lower Funding Fee

The VA loan program mandates an upfront funding fee, which can be paid at closing, offset with a lender-paid credit, covered by the seller as part of closing costs, or added to the loan balance. The funding fee for a regular VA loan typically ranges from 1.25% to 3.3% based on various factors. However, for a VA Streamline, the funding fee is a flat 0.5% of the loan amount in all situations.

• Potential Mortgage Structure Change

Refinancing with a VA Streamline might enable a shift from an adjustable-rate mortgage (ARM) to a fixed-rate loan. ARMs fluctuate with changing rates, while fixed-rate mortgages maintain a constant interest rate until the loan is paid off.

Cons

There are costs and limitations you should think about with a VA Streamline.

• Keep Up with Mortgage Payments

You've got to stay up to date with your mortgage payments. That means not being more than 30 days late on a payment in the last 6 or 12 months, depending on how you qualify.

• Applies Only to Your Current Property

The VA IRRRL is only for service members or qualifying surviving spouses with current VA loans, and it's just for the loan on your current home. You can't transfer this loan to a new property; it has to be for the property you bought with the VA loan you're refinancing.

• Tough Eligibility Criteria

You need a VA loan to be eligible for a VA Streamline. It would help if you were also in good standing with your lender, current on mortgage payments, and proved that refinancing will lower your interest rate. Some people might not meet these criteria.

• Closing Expenses

There are closing costs and VA IRRRL funding fees. You can add these costs to your new loan balance, but you'll pay interest on them.

• Mortgage Duration

VA loan refinances are flexible, but there's no rule saying you can't extend your mortgage, which might take longer to pay off. This might not work for everyone.

• Waiting Periods

You must wait 270 days from closing your original mortgage to apply for the VA Streamline. You also need six consecutive monthly payments on your loan, with 210 days between your first mortgage payment and the VA Streamline closing.

 

Am I Eligible for an IRRRL?

You might qualify for an IRRRL if:

• You have a VA-backed home loan already.
• You want to refinance that existing VA-backed home loan.
• You confirm that you currently live or used to live in that home.

Remember, if there's a second mortgage, the holder needs to agree for your new VA-backed loan to become the first mortgage.

 

How to Get an IRRRL

 

1. Find a Lender

Look for a bank, mortgage company, or credit union to get an IRRRL. Different lenders have different terms and fees, so checking with a few is wise to see what they offer.

Note: Be cautious if you have a VA home loan and are considering refinancing. Some offers promise skipping payments or extremely low rates, but they could be misleading.

2. Provide Necessary Information to Your Lender

If you have your Certificate of Eligibility (COE) from when you got your original VA-backed home loan, show it to your lender to demonstrate your previous entitlement use. If you don't have it, ask your lender to obtain it electronically through the VA Home Loan program portal.

3. Follow Your Lender’s Steps to Close the IRRRL Loan and Cover Your Closing Costs

You might have to pay the VA funding fee, a one-time fee that helps reduce the loan cost for taxpayers. Your lender will also charge interest and closing fees.

You can roll these costs into the new loan with an IRRRL, avoiding upfront payments. Alternatively, you might qualify for a higher interest rate, allowing your lender to cover these expenses.

 

The Bottom Line

If you want to pay less each month for your mortgage or need more time to pay, talk to a Home Loan Expert about a VA IRRRL. It's also called a VA Streamline and could help you refinance for a lower interest rate or smaller monthly payments through the VA. And if you used to live in a home you're now renting out, you might still qualify for a VA IRRRL with the right proof.