VA Interest Rate Reduction Refinance Loan (IRRRL): What You Need to Know
August 18, 2020
The VA loan program was instituted in 1944 and is one of the most popular mortgage finance options in the United States to this day. VA loans are backed by the U.S. Department of Veterans Affairs and allow veterans access to mortgage options without a down payment or private mortgage insurance (PMI).
Millions of military veterans have taken advantage of this unique housing benefit. But what happens if you have a VA loan and are having trouble making your monthly payments or want to lower your interest rate or payment with little to no equity? A VA Interest Rate Reduction Refinance Loan (IRRRL) may help you refinance to a lower interest rate through 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.
What Is A VA Streamline Refinance (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 a typical refinance.
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 also 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 refinance 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 other reason that doesn’t directly relate to your finances.
- Your interest rate: The most common reason why veterans and their family members refinance their VA loans is that they need a lower interest rate.
- Your monthly payments: When you refinance 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.
- Your mortgage structure: As a reminder, refinancing with a VA Streamline could allow you to move from an ARM 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. Moving from an ARM to a fixed-rate mortgage is the only instance where you’re allowed to choose a mortgage with a higher interest rate than your current rate, as ARM interest rates could increase over time.
What Stays The Same
- Your home: You may change mortgage lenders or your mortgage specifics, not your actual property.
- Potentially, your mortgage length: VA loan refinances are flexible, and there’s no rule that says you must extend your mortgage. If you’re already a few years into your mortgage, you may choose a new plan without altering your mortgage length as long as your new lender offers you this option.
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.
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Who Are VA Streamline Refinances For?
Though many veterans are eligible for a VA Streamline, that may not be the best choice for everyone. Here’s who’s eligible and who’s an ideal VA Streamline candidate.
VA Streamline refinance candidates must meet all the following criteria to qualify:
You must be eligible to receive VA loan benefits. You can’t refinance a non-VA loan if you aren’t eligible for VA loan benefits. You qualify if you’re a member of the armed forces or reserve forces or you’re a veteran who has served 90 consecutive active service days during wartime or 181 consecutive active service days during peacetime.
You may also qualify if you’ve served more than 6 years with the National Reserve or National Guard. And you may also qualify if you’re the spouse of a veteran who died during active duty or who died due to a duty-related illness or injury as long as you receive Dependency Indemnity Compensation.
Finally, the VA allows you to get a VA Streamline if your veteran spouse has passed if you were on the prior VA loan and you haven’t remarried.
The VA has more specific guidelines around eligibility and what qualifies as wartime or peacetime.
You 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 as long as you previously lived in the residence. However, Rocket Mortgage® by Quicken Loans® doesn’t offer VA Streamline refinances for investment properties at this time. You must occupy the property as your primary home.
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.
Who’s A Good Candidate?
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. Does this sound like you? 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 this change when you get 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 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 Do You Apply For A VA Streamline Refinance?
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 One: 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 Two: Contact A Home Loan Expert
It’s helpful to get in contact with an expert if you decide that a VA Streamline is right for you. Rocket Mortgage® by Quicken Loans® has Home Loan Experts who are ready to talk you through a VA Streamline with your specific financial profile.
Home Loan Experts are available outside of traditional banking hours and provide solutions that work with your schedule. Give the team a call today at (833) 326-6018 or visit online for extended online live chat options.
Have you found that you don’t qualify for a VA Streamline refinance and want to know your options? A Rocket Mortgage® by Quicken Loans® Home Loan Expert can help.
Paying your mortgage shouldn’t be stressful. If you have trouble keeping up with your monthly payments or 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 Streamline refinance.
A VA Streamline, also referred to as a VA IRRRL, 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 National 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 Streamline on a home you’re renting out as long as you have proof that you once lived in the home, although Quicken Loans® doesn’t offer Streamlines outside of primary homes.
Get started refinancing with Rocket Mortgage® by Quicken Loans®. Our experts are ready to talk to you in depth about a VA Streamline and whether it’s the best fit for you.
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