The VA loan program allows eligible veterans, active-duty service members, reservists, National Guard personnel and qualifying surviving spouses access to mortgage options without a down payment or private mortgage insurance. Millions of military veterans and active personnel have taken advantage of this unique housing benefit from the Department of Veterans Affairs (VA).

But what happens if you have a VA loan and you’re having trouble making your monthly payments? A VA Interest Rate Reduction Refinance Loan (IRRRL, pronounced “earl”) may help you refinance to a lower interest rate.

Let’s take a look at what a VA IRRRL is, the pros and cons of a VA IRRRL loan and whether it’s a good choice for your situation.

What Is A VA IRRRL?

A VA IRRRL is also referred to as a VA Streamline, and the terms are often used interchangeably. Lenders use the term “streamline” to imply that the IRRRL process is simpler and faster than other types of refinancing options.

VA Streamlines can help you switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, lower your monthly interest rate or change your repayment term. You must have an existing VA loan to undergo a VA Streamline.

If you wish to convert your home equity to cash, you must undergo the full VA cash-out refinance process.

How Does A VA Streamline Refinance Work?

The word “streamline” is lender-speak for a simplified and less expensive refinance process. Remember, when you apply for a full refinance, you’re essentially undertaking the same process you went through when you bought the home. That includes a new appraisal, new title search and new recording fees.

With a streamlined process, there’s often no new appraisal and underwriting is often simplified. Your lender may require a minimum credit score and employment verification, but the VA doesn’t. As long as you’re up to date on your mortgage payments, you should be approved for a streamline loan.

You will need to get a new title search performed, and purchase a new title insurance policy for the lender. The streamlined process moves quickly, and the closing costs can typically be rolled into the new loan.

When Can You Use a VA IRRRL?

The VA will only allow you to take advantage of a VA Streamline refinance of your loan if the new terms provide you with an immediate financial benefit, such as a lower interest rate or a lower monthly payment. You can’t refinance your loan just because you don’t like your current lender or for any reason that doesn’t directly relate to your finances.

VA IRRRL Advantages And Disadvantages

VA IRRRL Streamline Refinance Pros

The VA Streamline refinance program offers many benefits over other refinance options.

Lower Interest Rate

The most common reason why veterans and their family members may want to refinance a VA loan is to secure a lower interest rate. The VA strongly encourages borrowers to take on a VA IRRRL if the interest rate is lower than their original mortgage loan, unless the loan they’re refinancing is an ARM.

Lower Monthly Payments

If you’re thinking about refinancing with a VA Streamline, your monthly mortgage payments may decrease. Lower monthly payments may result from an extended term on the loan, which allows more time to pay off the mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.

Lower VA Funding Fee

The VA loan program requires borrowers to pay an upfront VA funding fee that can either be paid at closing, offset with a lender-paid credit, covered by seller concessions (a seller agrees to pay partial closing costs) or rolled into the loan balance.

The amount of the funding fee on a regular VA loan is anywhere between 1.25% – 3.3% of the loan amount, depending on service status.

For a VA Streamline, the funding fee is 0.5% of the loan amount in all circumstances.

Potential Change In Mortgage Structure

Refinancing with a VA Streamline could allow you to move from an ARM to a fixed-rate loan. Adjustable-rate mortgages change over time, depending on rate fluctuations. Fixed-rate mortgages lock in a single interest rate until you pay off your loan.

VA IRRRL Streamline Refinance Cons

There are some costs and limits to a VA Streamline to consider. Let’s go over some common drawbacks of refinancing with a VA IRRRL.

You Must Be Current On Your Mortgage

You must be current on your mortgage payments in order to refinance with a VA Streamline. This means that you can’t be more than 30 days late on a payment in the last 6 – 12 months depending on how you qualify.

It’s Only Applicable To Your Current Property

Only service members or qualifying surviving spouses who currently have VA loans can take advantage of a VA IRRRL.

You may change mortgage lenders or your loan terms with a VA IRRRL, but not your actual property. This means you can’t switch this loan into a new property; it must be refinanced into the property you purchased with the VA loan you’re now refinancing.

You Must Meet Strict Eligibility Requirements

To qualify for a VA Streamline, you must already have a VA loan. You’ll need to be in good standing with your lender, current on your mortgage payments and be able to prove that the refinance will lower your interest rate.

You’ll Have To Pay Closing Costs

You’ll have to pay closing costs when you close on your VA IRRRL. With closing costs also comes VA IRRRL funding fees. A borrower can choose to roll over these costs into the new loan balance, which means they’ll still be paying for them with interest on top.

You Might Have To Pay Your Mortgage For Longer

VA loan refinances are flexible, and there’s no rule that says you must extend your mortgage. Depending on the situation, you might have a longer mortgage length – and it might take a longer time to pay off. This could be a negative for some borrowers.

Your Mortgage Must Be Seasoned

It’s important to note that you must have made six consecutive monthly payments on your loan before refinancing with a VA IRRRL. There also must be 212 days between making your first payment on the initial mortgage and closing on the VA Streamline.

VA IRRRL Pros And Cons: At A Glance

Here’s a brief look at the benefits and drawbacks of refinancing with a VA Streamline.

Who’s Eligible For A VA IRRRL Refinance?

To be eligible for a VA IRRRL, you must meet the following requirements.

You Currently Have A VA Loan

VA Streamline refinance candidates must currently have an outstanding VA loan. VA loan stipulations dictate that you can’t take advantage of the VA Streamline process if you don’t have a VA loan.

Some qualified veterans and service members may qualify for a regular VA refinance if they currently have a conventional loan or FHA loan, but these loans require appraisals and aren’t eligible for a VA Streamline.

You Meet Owner Occupancy Requirements

The VA may allow qualification for a Streamline refinance for a rental home if you previously lived in the residence. If you’re trying to refinance your investment property, you must prove that you resided in the home as your primary residence at some point in the past and can meet the VA owner occupancy requirement.

Proof of residence may include bank statements, pay stubs and bills with your name and address printed on them.

You Benefit Financially From The Refinance

Your lender will have to certify that you gain a tangible net benefit from refinancing your VA loan. This means that the savings you’re getting – either through a lower interest rate or a more manageable monthly payment – justifies the closing costs you’ll pay.

How To Apply For A VA IRRRL Refinance

Applying for a VA Streamline refinance only requires a few steps. Let’s go over the application process so you’re prepared if you decide to refinance with a VA IRRRL.

Step 1: Determine Whether You Qualify

Review your lender requirements to make sure you qualify for a VA Streamline. These basic requirements include that you already have a VA loan and you currently live in the house that’s financed by that mortgage.

Look over your finances and determine whether you’re able to make payments at your current interest rate. If VA IRRRL interest rates are lower than your current rate, you may want to consider refinancing.

Step 2: Get Your Documents Ready

One of the best aspects of the streamlined process is the minimal paperwork required. Throughout the process – from application to closing – you’ll need to complete and submit, or sign the following documents:

• The lender cover letter
• VA Form 26-0286, VA Loan Summary Sheet
• Your Certificate of Eligibility (COE), or VA Form 26-1880 to request a duplicate COE
• Funding fee receipt
• The lender’s statement of tangible net benefit
• The IRRRL worksheet (VA Form 26-8923)
• The report and certification of loan disbursement (VA Form 26-1820)
• The verification of VA benefits (VA Form 26-8937)
• The settlement statement (HUD-1)
• The Federal Collection Policy Notice (VA Form 26-0503)
• Lender’s certification that the borrower of the current mortgage is up-to-date with their payments
• Documentation of energy efficient upgrades, if applicable

Step 3: Contact A Home Loan Expert

It’s helpful to talk to an expert if you decide that a VA Streamline is right for you. Rocket Mortgage^® has Home Loan Experts who are ready to walk you through the VA Streamline process with your specific financial profile in mind.

Have you found that you don’t qualify for a VA Streamline refinance and want to know your options? A Rocket Mortgage Home Loan Expert can help with that, too.

VA Streamline Refinance FAQs

Check out the following frequently asked questions to learn more about VA IRRRLs.

Can I get money back from a VA IRRRL refinance?

Not usually, but there’s one exception. You can get reimbursed for up to $6,000 of the cost of energy-efficient home improvements completed within 90 days before closing. In some rare circumstances, the VA may approve other reimbursements.

How much does the VA IRRRL cost?

Because you won’t need to pay for a new home appraisal, your VA IRRRL may be less expensive than other loan refinance options. While you can expect to pay between 2% – 6% in closing costs for a full refinance, a VA IRRRL may be cheaper.

Lenders can choose to charge 1% of the loan amount to cover their costs or itemize for certain allowable fees. The only other charge is the 0.5% funding fee. All other closing costs can be rolled into the loan itself.

Can I buy discount points to lower my interest rate?

Yes. The VA allows borrowers to buy up to two discount points to reduce their interest payments.

Can I use the VA Streamline refinance for an investment property?

In general, you can’t use a VA IRRRL to refinance an investment property. The VA guidelines state that you should live in the home for at least a year.

However, if you bought a property with a VA loan and met that requirement, and have since moved into a different home, you can refinance what was once your primary residence but is now an investment property.

The Bottom Line

A VA IRRRL may be an ideal refinance option for you if you already have a VA home loan and want a lower interest rate or lower monthly mortgage payment.

If you’re looking to refinance a house you now use as an investment property, you might be able to do so with a VA IRRRL as long as you lived in the house for at least 1 year.

Are you ready to start your VA IRRRL application? Apply online now or speak to one of our Home Loan Experts at (833) 326-6018 to discuss whether a VA Streamline is the best fit for you.