VA Streamline Refinance (VA IRRRL): What Is It And How Does It Work?
Victoria Araj7-minute read
August 01, 2022
The VA loan program was instituted in 1944 and remains one of the most popular mortgage finance options in the United States to this day. VA loans are backed by the Department of Veterans Affairs, and allow veterans access to mortgage options without a down payment or private mortgage insurance.
Millions of military veterans have taken advantage of this unique housing benefit. 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) may help you refinance to a lower interest rate through assistance from the VA.
Read on to learn more about whether you qualify and how you can get started on the path toward a more manageable mortgage.
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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 term. You must have an existing VA loan to undergo a VA Streamline. If you wish to convert your home’s equity to cash, you must undergo a full refinance.
How Does A VA Streamline Refinance Work?
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
If you secure an IRRRL, you’ll likely be securing one of the lowest interest rates out there. Rates can fluctuate, however, so it’s a good idea to research current mortgage rates. You’ll also want to consider a few different lenders in order to find the best IRRRL rate available. It’s important to understand the advantages and disadvantages when it comes to securing a VA IRRRL.
Let’s look at a few.
VA Streamline Refinance Pros
- Lower interest rate: The most common reason why veterans and their family members refinance their VA loans is that they need a lower interest rate.
- Lower monthly payments: When it comes to how refinancing works with a VA Streamline, your monthly payments often decrease. Lower monthly payments may result from an extended term on the loan, which allows more time to pay on your mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.
- Lower funding fee: Instead of mortgage insurance, VA loans have a funding fee that can either be paid at closing, offset with a lender-paid credit, covered by seller concessions (where a seller agrees to pay partial closing costs) or added to the loan balance. The amount of the funding fee on a regular VA loan is anywhere between 1.4 – 3.6% of the loan amount depending on service status, down payment amount, if it’s your first time using a VA loan and whether it’s a purchase or refinance. For a VA Streamline, the funding fee is 0.5% of the loan amount in all circumstances.
- Potential change in mortgage structure: As a reminder, refinancing with a VA Streamline could allow you to move from an adjustable-rate mortgage to a fixed-rate loan. ARMs change over time, depending on rate fluctuations. Fixed-rate mortgages lock in a single interest rate until you pay off your mortgage.
VA Streamline Refinance Cons
- Only applicable to your current home: You may change mortgage lenders or your mortgage specifics, not your actual property. This means you can’t switch this loan into a new property; it must be refinanced into the property you already own.
- Eligibility: To qualify for a VA Streamline, you must have a VA loan to begin with.
- Closing costs: With closing costs also comes VA IRRRL funding fees. A borrower can choose to roll over these costs into their new loan balance, which means they’ll still be paying for them with interest on top.
- Mortgage length: 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.
It’s important to note that you must wait 270 days from the closing of your original mortgage to apply for the VA Streamline. You must also have made six consecutive monthly payments on your loan, and there must be 210 days between your first mortgage payment and the closing on the VA Streamline.
Who Are VA IRRRLs For?
Though many veterans are eligible for a VA Streamline, this refi may not be available for everyone. Here’s who’s eligible and who’s an ideal VA Streamline candidate.
Who’s Eligible For A VA IRRRL Refinance?
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 current VA loan.
Some qualified veterans and service members may qualify for a regular VA refinance if they currently have a conventional or FHA loan, but these loans require appraisals and aren’t eligible for a VA Streamline.
The VA may allow qualification for a Streamline if it’s a rental home, if you previously lived in the residence. If you’re trying to refinance your investment property using a VA Streamline, you must prove that you resided in the residence at some point in the past if you rent out the home now.
Proof of residence may include bank statements and bills with your name and address printed on them, utility bills or pay stubs that include your name and address. However, Rocket Mortgage® doesn’t offer VA Streamline refinances for investment properties at this time. You must occupy the property as your primary home.
Who’s A Good Candidate For The VA IRRRL Program?
The first candidate who might consider a VA Streamline is an eligible client with an ARM. Mortgages with adjustable rates often see higher interest rates over time. You can often save more money in the long term by refinancing an ARM, even if you initially take a higher interest rate when you switch from an ARM to a fixed-rate mortgage.
You might also consider this if you have trouble keeping up with your payments. A VA Streamline can do multiple things: Lower your rate, give you a more manageable payment, extend the length of your mortgage and find you a lower interest rate. The best VA loan providers work with you to find the solution that’s right for you and your family’s unique financial situation.
This is also good for you if you can prove a tangible net benefit. As stated earlier, you must show the lender that there’s a financial benefit to qualify for a VA Streamline.
Each lender may have their own terms for what qualifies as a tangible net benefit, and the VA has certain minimum standards, so you should ensure you’re able to meet these net benefits when you apply. Your application can be denied because of a failure to prove a tangible net benefit.
How To Apply For An IRRRL VA Loan
Applying for a VA Streamline refinance only requires a few steps. You can even apply online and get the information you need from the comfort of your own home.
Step 1: Make Sure You Qualify
Review the qualifications above and make sure you qualify for a VA Streamline. Sit down with your family, look at your finances and determine whether you’re able to make payments at your current interest rate.
Step 2: Get Documents Ready
When you know that you’ll qualify for a VA Streamline, make sure you have all the documents you’ll need. This will include personal information, such as:
- Name, address and previous addresses, phone number
- Date of birth and years of school completed
- Number and age of dependents
- Social Security number
- Valid ID
You’ll also need your employment and income history, assets and property information, and credit or liability information.
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 talk you through a VA Streamline with your specific financial profile.
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.
The Bottom Line
Paying your mortgage shouldn’t be stressful. If you have trouble keeping up with your monthly payments, or if you need more time paying your mortgage, it’s a good idea to speak with a Home Loan Expert soon to discuss the possibility of a VA IRRRL.
A VA IRRRL, also known as a VA Streamline, may help you refinance to a lower interest rate through the VA. Your new terms must provide you with an immediate financial benefit, such as a lower interest rate or a lower monthly payment.
You must be eligible to receive VA loan benefits based on service time. You may also qualify if you’ve served more than 6 years with the Reserve or National Guard. Finally, there’s a chance that you qualify as the spouse of a veteran who died during active duty or who died due to a duty-related illness or injury. You must also currently have an outstanding VA loan.
You might even be surprised to learn that you can also get a VA IRRRL on a home you’re renting out, if you have proof that you once lived in the home – although Rocket Mortgage doesn’t offer Streamlines outside of primary homes.
Get started refinancing with Rocket Mortgage. Our Home Loan Experts are ready to talk to you in depth about a VA IRRRL and whether it’s the best fit for you. Check out the Rocket Mortgage Learning Center for more information and tips on refinancing.
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