VA Streamline Refinance Loan (VA IRRRL)

The VA home loan program was created in 1944 as part of the Servicemen’s Readjustment Act (better known as the GI Bill), to help those returning from World War II buy homes. The federal government understood that military members would need a boost after serving their country for an extended period, when they normally would have been building wealth.

The VA Streamline Refinance Loan, officially VA Interest Rate Reduction Refinance Loan (VA IRRL), is a way those with a VA loan can get quick financial relief. It’s one of many adjustments to the original VA loan made over the years to ensure veterans and military members could afford home ownership.

VA Streamline Refinance rates are lower than traditional refinancing rates. “Streamline” is exactly what it sounds like – the loan is a quick, hassle-free option for refinancing a VA mortgage.

The goals vary: to reduce monthly payments with a lower interest rate and possible loan extension; to switch from an adjustable-rate mortgage to a fixed rate; or shorten the term of the loan, reducing the overall cost.

Veterans or military members considering refinancing as a way to reduce monthly costs may find the VA IRRL to be a good option.

» Learn More: Current VA Loan Interest Rates

Benefits of a VA Streamline Refinance

VA Streamline Refinancing skips over many of the requirements that normal refinancing has, which means that the process is quicker and the loans are easier to get. The overall goal is to lower monthly payments and build a more stable financial situation for the borrower, but the loan term can also be shortened in order to pay the loan off faster, which saves money in the long run.

Benefits of a VA IRRL include:

• Lower mortgage rate and monthly payments.
• Change from adjustable rate mortgage (ARM) to fixed rate, making monthly payments and overall cost consistent.
• Lengthen term of loan up to 10 years for lower monthly payment, or shorten term for lower long-term costs.

Who is Eligible for a VA Streamline Refinance?

Borrowers must already have a VA mortgage to apply for a VA Streamline Refinance.

The loans are available to active-duty military, veterans and surviving spouses. Active-duty service members must have served for 90 continuous days. Veterans must not have had a dishonorable discharge; length of service varies depending on when the service was. The U.S. Department of Veterans Affairs has a minimum active-duty chart on its website.

Also, the home must be the borrower’s primary home – in other words, the borrower must live there. Some, but not many, lenders allow the refinancing if the owner is renting out the home, but it has to have been their primary home in the past.

VA Streamline Refinance Requirements

Those eligible to apply for a VA Streamline Refinance must meet certain requirements, most having to do with their current VA loan. An overall requirement is that the VA IRRL must improve the borrower’s financial situation – monthly payments must be lowered. The exceptions are if the borrower is switching from an ARM to a fixed-rate mortgage, shortening the loan term to decrease overall cost or using refinancing cash for energy efficiency improvements.

VA Streamline Refinance rates must be at least 0.5% lower than the current interest rate if a fixed-rate VA loan is being refinanced. If the current loan is an adjustable rate mortgage (ARM), the new rate must be 2% or more below the current one.

Other requirements to qualify include:

• Six straight months of on-time payments on the current VA loan.
• No more than one late payment in the past 12 months.
• Closing on current loan must have been no fewer than 270 days before.
• First payment on current loan must have been no fewer than 210 days before.

Pros and Cons of a VA Streamline Refinance Loan

VA Streamline Refinance pros and cons vary depending on the borrower’s current mortgage, as well as what the lender is offering. Be sure to shop around for a lender that will offer you a loan that will work with your financial situation and fit the goals you seek. You should research mortgage interest rates as well – not only to find out what the standard is, but also how they compare to what you’re paying now.

Pros of a VA Streamline Refinance

VA Streamline Refinance pros, particularly in comparison to a traditional refinance or VA cash-out refinance, are:

• Pay stubs, W2 forms, bank statements etc. aren’t required.
• Home appraisal isn’t required.
• Underwater mortgages are eligible.
• Closing costs can be included in loan.
• Can include up to $6,000 for energy efficiency renovations.

Cons of a VA Streamline Refinance

• Must already have a VA loan.
• Only applies to primary residence.
• Rolling funding fee into loan means paying interest on a higher balance.
• Waiting period to apply after closing on mortgage.

What Are the Closing Costs for a VA Streamline Refinance?

Just as with traditional refinance loans, the VA Streamline Refinance has closing costs, including a VA funding fee of 0.5% of the loan amount. On average, closing costs for VA loans will overall be 2% to 5% of the loan amount, similar to a traditional refinancing. If you can’t pay out of pocket, the fee and other closing costs can be rolled into the loan, or the lender may increase the interest rate to pay the fee off. Either option, though, increases the monthly payment.

VA Streamline Refinance closing costs include some or all of these, depending on the lender and loan terms:

• Funding fee
• Loan origination fee
• Loan discount points
• Credit report and payment of any credit balances or judgments
• State and local taxes
• Recording fee

The VA Streamline Refinance Process

While the loans are backed by the VA, borrowers still must get the loan from a bank, credit union or other lender. The process is similar to that of applying for a mortgage or traditional refinancing, only with fewer bells and whistles. In short, it includes finding a lender, getting your information together and closing on the loan.

Step 1: Shop Around for Lenders

Shop around for the best rates – lenders offer different interest, origination fees and more on VA loans. There are many lenders who offer special rates for veterans and military members. Seriously examine at least three lenders before making a decision.

Be sure the lender you choose is VA-approved. If an offer sounds too good to be true, then it is. Lenders can’t waive the loan requirements, so avoid ones who say they will, or offer other “deals” that don’t seem right.

Step 2: Apply

Your lender’s loan officer will guide you through the process. A certificate of eligibility (COE) is not required by the VA, but some lenders may want to see the COE for your original loan. They can get it through the VA Home Loan Program portal, or you can provide it. Be ready to answer questions about the interest rate, balance, term and other details of your VA loan.

Step 3: Follow Through Until Closing

Arrive at the closing knowing what the closing costs are, and whether you are paying out of pocket, they’re being rolled into the loan, or lender credits are being used.

If a payment on your original loan comes due before you close, pay it – being current on payments is essential.

VA Streamline Refinance vs. Cash-Out Refinance

The VA offers two types of refinancing – the VA IRRL and VA Cash-Out Refinance loan.

A cash-out refinance is when a borrower takes out a new mortgage and gets money back based on the equity in their home. Equity is what the home is worth compared to what’s owed. For instance, if you owe $100,000 on your mortgage, but your home is appraised at $150,000, you have $50,000 in equity. A cash-out refinance is a new mortgage that pays the old one, with money left over that the borrower can use for things like paying off debt, paying for college, making home repairs and more. Most lenders will let a borrower take out up to 80% of the equity.

Borrowers can also use a VA Cash-Out Refinance loan to switch from a non-VA loan to one backed by the VA.

VA Streamline Refinance rates are lower than rates for VA cash-out refinancing, and the cash-out option application process has more requirements and paperwork.

Cash-out differences are:

• Can be used for non-VA loan.
• COE is required.
• Credit check is required.
• Paperwork, including paycheck stubs for the most recent 30-day period, the previous two years’ W-2 forms, previous two years federal income tax returns, and more, is required.
• Home appraisal required.
• VA funding fee is 2.3% for first use, 3.6% for subsequent uses.

As with the VA Streamline Refinance loan, the funding fee may be used at closing to help lower some of the costs.