What Is a VA Streamline Refinance and How Does It Work?
Understand the VA Streamline Refinance: a simplified path for veterans to secure better terms on their existing VA home loan.
A VA Streamline Refinance, formally known as an Interest Rate Reduction Refinance Loan (IRRRL), is a mortgage refinancing option for eligible individuals who currently hold a VA loan. This program allows homeowners to refinance their existing VA loan to secure a lower interest rate or convert an adjustable-rate mortgage into a fixed-rate mortgage. The IRRRL simplifies and expedites the refinancing process for veterans and servicemembers, offering a straightforward path to improving loan terms.
Eligibility Requirements
To qualify for a VA Streamline Refinance, the current mortgage must be an existing VA-backed home loan.
Borrowers must certify previous occupancy of the property as their primary residence. Unlike other VA loan types, current occupancy is not required, allowing refinancing of properties no longer serving as a primary residence.
A good payment history on the existing VA loan is required. Most lenders allow no more than one 30-day late payment within the last 12 months. Some may require at least six consecutive on-time payments.
The refinance must provide a “net tangible benefit” to the borrower, such as a lower interest rate, a reduced monthly payment, or conversion from an adjustable-rate to a fixed-rate mortgage. For fixed-rate to fixed-rate refinances, the new interest rate typically needs to be at least 0.50% lower than the existing rate.
A seasoning period is required before an IRRRL can be initiated. At least 210 days must have passed since the first payment due date of the original loan, and at least six consecutive monthly payments must have been made.
Key Features and Benefits
A new appraisal is typically not required for a VA Streamline Refinance, which accelerates the process and reduces costs. This simplifies the transaction compared to other refinance options.
Income and employment verification are generally not required for an IRRRL, unless the new mortgage payment increases by more than 20% or there are concerns about income stability. Full credit underwriting is often waived, though lenders may still review a credit report. This allows for quicker approval and less extensive documentation.
The VA funding fee is an upfront cost for most VA loans, typically 0.5% of the loan amount for IRRRLs. This fee can usually be financed into the new loan. Exemptions apply to Veterans receiving compensation for service-connected disabilities, Purple Heart recipients, or qualifying surviving spouses.
Closing costs for IRRRLs can range from 2% to 6% of the loan amount. These costs can often be rolled into the new loan, avoiding upfront out-of-pocket expenses. Alternatively, a lender might offer to cover these costs for a slightly higher interest rate.
The new loan amount is generally limited to the outstanding balance of the existing VA loan, plus the VA funding fee and allowable closing costs. Unlike a VA cash-out refinance, an IRRRL does not permit borrowers to receive cash from their home equity.
The Application Process
The initial step involves finding a VA-approved lender. Many mortgage lenders offer IRRRLs, and borrowers are not required to use their original lender. Seeking quotes from several can help secure the most favorable terms.
After selecting a lender, the borrower begins the loan application process. This involves providing current loan details, such as the original loan note or most recent mortgage statement, to verify the existing VA loan.
Documentation requirements for an IRRRL are minimal. Borrowers may need to provide a copy of their Certificate of Eligibility (COE) if the lender cannot obtain it electronically. Other documents might include a VA loan summary and forms verifying VA benefits.
Following application submission, the lender proceeds with underwriting and approval. The lender reviews the information to ensure eligibility criteria are met. This phase typically moves quickly due to fewer requirements than other loan types.
The final stage is closing, where the borrower signs legal documents to finalize the new loan. After closing, the new loan terms become effective, and the borrower begins making payments under the updated conditions.
The timeline for a VA Streamline Refinance is often faster than traditional refinances. Because an appraisal is usually not required and documentation is reduced, the process can often be completed within a few weeks, though specific timelines can vary by lender and individual circumstances.