What Is a VA Streamline Refinance (IRRRL)?
Learn about the VA Streamline Refinance (IRRRL), a simplified way for veterans to improve their existing VA home loan terms.
The VA Streamline Refinance, formally known as an Interest Rate Reduction Refinance Loan (IRRRL), is a specific mortgage refinance option available to eligible veterans and service members. Its primary purpose is to help those who already possess a VA-backed home loan to obtain more favorable loan terms. This can involve reducing the interest rate, which typically leads to lower monthly payments, or converting an adjustable-rate mortgage (ARM) to a stable fixed-rate mortgage.
What Defines a VA Streamline Refinance
A VA Streamline Refinance is characterized by its simplified process. It typically does not require a new appraisal of the property, credit underwriting, or extensive income verification. While the Department of Veterans Affairs (VA) itself does not mandate a minimum credit score or appraisal for an IRRRL, individual lenders may still impose their own requirements for these, along with employment verification. The refinance must be applied to an existing VA-guaranteed loan, meaning it is a VA-to-VA refinance.
A core requirement for this program is the “net tangible benefit” rule. This advantage typically manifests as a lower interest rate, a reduced monthly principal and interest payment, or the conversion of an adjustable-rate mortgage to a fixed-rate mortgage, which offers payment stability. If the new loan is a fixed-rate mortgage, its interest rate must be lower than the existing VA loan’s rate, unless the original loan was an adjustable-rate mortgage. The only exception to the payment decrease rule is if the IRRRL refinances an ARM, shortens the loan term, or includes energy-efficient improvements.
Eligibility for a VA Streamline Refinance
To qualify for a VA Streamline Refinance, the borrower must have an existing VA-guaranteed loan on the property being refinanced. The borrower must also certify that they previously occupied the property as their home. While the VA does not require current occupancy for an IRRRL, some lenders may have this stipulation.
Borrowers are generally expected to demonstrate a good payment history on their existing VA loan. This typically means having no more than one payment made 30 days past its due date within the last 12 months, and no 60-day late payments. The existing loan must also be “seasoned,” meaning a certain period, often at least six monthly payments and 210 days, must have passed since the first payment due date of the original loan.
Costs of a VA Streamline Refinance
A significant cost associated with a VA Streamline Refinance is the VA funding fee. For IRRRLs, this fee is typically 0.5% of the loan amount. Certain veterans are exempt from paying this fee, such as those receiving VA compensation for service-connected disabilities.
In addition to the funding fee, borrowers will incur other typical closing costs. These can include title insurance, recording fees, and various lender-specific fees. They can pay them out of pocket at closing, or these costs can be rolled into the new loan amount. Rolling costs into the loan means they are financed over the loan’s term, accruing interest. Alternatively, a lender might agree to cover some closing costs in exchange for a slightly higher interest rate on the new loan.
How to Apply for a VA Streamline Refinance
The application process for a VA Streamline Refinance begins by contacting multiple VA-approved lenders. This allows for comparing different interest rates and loan terms offered by various financial institutions. Lenders will provide a Loan Estimate, which details the proposed interest rate, annual percentage rate (APR), and an itemized list of estimated closing costs.
Once a preferred lender is selected, they will require basic information about the existing VA loan. While the VA streamlines many documentation requirements, the lender will verify that the existing loan is VA-guaranteed and that the refinance offers a net tangible benefit. After reviewing the Loan Estimate and agreeing to the terms, the formal application is submitted. The final stage involves signing the closing documents and the disbursement of the new loan funds, which pays off the original VA loan.