If you currently have a home mortgage loan through the Department of Veterans Affairs (VA), you may be looking for a way to refinance your loan so you can lower your interest rate.
One option is a VA Interest Rate Reduction Refinance Loan (VA IRRRL), sometimes known as a Streamline Refinance loan. It’s a quick and affordable method of refinancing a VA loan. A VA IRRRL is referred to as streamlined because it describes the main benefit of the loan: reducing a loan’s interest rate in less time and with less paperwork.
If you’re trying to decide whether a VA IRRRL is the right approach for your refinance, you came to the right place. We’re covering the VA IRRRL from top to bottom, from eligibility to its pros and cons.
What Is a VA IRRRL?
A VA IRRRL is used to help homeowners with VA-backed loans lower their mortgage interest rates, which can help lower their monthly mortgage payments.
Eligible borrowers can also use the program to go from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, without jumping through the hoops of a conventional refinance.
A VA IRRRL can usually be completed in just a few weeks, making this a fast and easy way to refinance for less. Borrowers typically get a quick close and can opt to fold the loan’s one-time funding fee into their new mortgage loan. Considering the convenience and benefits of an IRRRL, it’s no surprise that it’s among the most popular refinance programs for veterans.
Can you take cash out with a VA IRRRL?
It’s important to note that while a traditional VA refinance lets you borrow against your existing equity, a VA IRRRL doesn’t.
But if you want to refinance to a lower rate, meet the eligibility requirements and don’t need to take cash-out, the VA IRRRL program may be a great fit.
VA Streamline Refinance Eligibility Requirements
To refinance your home with a VA IRRRL, you’ll need to meet all three of the following requirements[1]:
- You have an existing VA loan.
- You certify that you’re only using the IRRRL to refinance your existing VA loan.
- You certify that you’re using the VA IRRRL for the home you live in or used to live in.
The VA doesn’t require a credit check, income verification or home appraisal, so there is less work involved than if you were applying for a conventional refinance. But it’s important to note that your VA-approved lender may have their own underwriting requirements.
Also, most IRRRL refinances can go through without a borrower ever needing to supply their lender with a Certificate of Eligibility.
What are the financial benefits of a VA IRRRL?
You’ll also need to show a clear financial benefit from the refinance. The refinance should lower your interest rate, lower your monthly mortgage payment or switch your adjustable-rate mortgage (ARM) to a fixed-rate mortgage. Each of these scenarios provides a clear benefit.
Let’s say you’ve got an ARM with a 4.8% interest rate, and you want to switch it to a 30-year fixed-rate loan with a 4.5% interest rate. The VA may not allow it to go through because the costs associated with the refinance — the VA funding fee and the lender’s closing costs — will cancel out any potential savings from the lower interest rate.
Now, let’s imagine a second scenario. You want to refinance from a 30-year fixed mortgage with a 5.4% interest rate to a 30-year fixed mortgage with a 4.5% interest rate. In this situation is a clear financial win! You would benefit from an interest rate that is almost a full percentage point lower.
This simplicity is why the VA Streamline Refinance is such a clear winner for veterans who need to refinance their mortgages. The process is simplified, and the underwriting requirements are usually very easy to meet. However, some lenders add additional credit requirements for loan approval.
The VA IRRRL interest rate, which is typically lower than the interest rate on a traditional loan, is set by the lender, not the VA.
Who Should Consider a VA IRRRL?
While nearly anyone considering a refinance would jump for many of these benefits, not everyone will qualify or benefit from a VA IRRRL.
Borrowers who may qualify include eligible veterans, active-duty service members or surviving spouses with a VA loan who can prove past or present residency in the home. And while the “financial benefit” rule isn’t a strict eligibility requirement, the VA requires that the borrower receive a clear benefit from refinancing.
What Are the Pros and Cons of a VA IRRRL?
The pros and cons of a VA IRRRL are crucial to consider. You can experience the impacts of a decision you make on a home loan for years — even decades. The benefits of a VA IRRRL are clear, but there are some potential drawbacks to consider, too.
✅Lower interest rates
Reducing your rate can lower your monthly mortgage payments and help you save thousands over the life of the new loan.
✅No mortgage insurance required
✅No credit check
Unless your lender requests it, your credit history won’t be checked.
✅No income or employment check
You don’t need to reverify your income or employment.
✅No loan limits
There is no borrowing limit, but the home’s value must validate the size of the loan.
✅Fast turnaround
The refinance can usually be completed in a few weeks.
⛔6-month wait to refinance
Borrowers must wait 210 days from their first payment on the existing VA mortgage or 6 months after making payments (whichever is longer) before refinancing.[2]
⛔No cash-out refinancing
A borrower can’t take cash out when they refinance. An IRRRL can only be used to refinance an existing VA loan.
⛔Mandatory VA funding fee
The VA funding fee for a Streamline/IRRRL refinance is 0.5% of the loan amount ($500 per $100,000 borrowed). You can opt to add the cost of the funding fee to your new VA home loan.[3]
⛔Lower rates aren’t guaranteed
Current market interest rates may not be lower than your existing loan rate.
How To Get the Best VA IRRRL Interest Rate
Shop around and compare loan types. You might be surprised to find that the lender offering the lowest VA IRRRL interest rate on a 30-year fixed-rate loan may not come close to matching another lender’s best VA IRRRL interest rate on a 15-year fixed loan.
Be sure to explore your options, from fixed and adjustable-rate loans to different loan terms.
How To Get a VA IRRRL
Saving money is great, so it’s important to know what steps you need to take to successfully refinance and start saving sooner. By understanding what to expect from the process, you’ll be in a better position to complete your refinance with confidence.
Let’s walk through the steps of getting a VA IRRRL:
1. Confirm eligibility
Make sure you’re eligible for a VA Streamline Refinance. You’ll need to meet all three of these requirements:
- You have an existing VA loan.
- You certify that you’re only using the IRRRL to refinance your existing VA loan.
- You certify that you’re using the VA IRRRL for the home you live in or used to live in.
2. Find a lender that works with VA loans
You’ll want to find a lender that offers VA loans. Make sure to compare lenders and find the best interest rates and loan terms that make sense for your financial situation. You can also talk to your regional VA center for information and recommendations.
3. Get your documents ready
Getting and staying organized is key when you’re getting ready to refinance.
The required IRRRL paperwork is quite minimal. Essentially, you only need to provide proof of identity and proof of homeowners insurance.
And while the VA doesn’t require credit underwriting, income verification or a home appraisal, your lender may have additional requirements. To be prepared, you’ll want to have some documents handy in case the lender asks for them:
- A recent monthly mortgage statement
- Several months of bank statements
- W-2s or pay stubs from the past 2 years
- Proof of additional income
- Government-issued ID
- Proof of homeowners insurance
This isn’t an exhaustive list. While lender documentation requirements may differ, it’s best to collect these standard documents before applying. Staying organized can be the key to a smooth refinance.
4. Consider seeking expert assistance
When you’re refinancing a home loan, things can get confusing — fast. You might need help navigating the paperwork and steps involved with the VA IRRRL program, so let us point you in the right direction.
Lean on your assigned loan officer. They should be able to answer your questions and seamlessly guide you through your refinance. They should have answers to any questions you have about VA loan interest rates, VA IRRRL eligibility requirements and more.
Lastly, you can always contact your regional VA center to see what resources are offered by the VA.
5. Apply according to your lender’s instructions
The general application process for a VA IRRRL involves:
- Completing and signing a VA loan application: Complete and sign the lender’s loan application form.
- Submitting your docs: If required, submit your Certificate of Eligibility and any additional documentation with your application or shortly after submitting your application.
- Meeting any requested lender requirements: This may include getting your home appraised or removing a credit freeze from your credit reports.
Don’t forget, you should expect to pay a 0.5% VA funding fee and any other refinance closing costs, which will vary by lender. Review your costs and how you’ve agreed to pay them off.
A VA IRRRL loan usually takes a few weeks from application to closing. Closings typically take place in a title company’s office or at a bank. But, as a by-product of the pandemic, closings can even happen in your backyard.
Is a VA IRRRL Worth It?
The VA IRRRL is a unique benefit for eligible homeowners who want to reduce their interest rate or monthly mortgage payment. As with any financial decision, the value will depend on your financial situation.
Is a VA Streamline Refinance right for you? To answer that question, you’ll need to consider your current interest rate and loan type, whether another type of VA loan would be a better solution and if accessing equity is important to you.