What is a VA IRRRL Streamline refinance?

If you're thinking about refinancing your VA loan, one of your options is an Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamline refinance. What is a VA IRRRL? It's a way to refinance your Veterans Affairs-backed mortgage to reduce your interest rate or change your loan term more easily than with other types of refinancing.^1,2

How does a VA Streamline refinance work?

A VA Streamline refinance allows homeowners with a VA loan to refinance with less documentation and possibly no appraisal.³

Most homeowners who refinance with an IRRRL do so to get a lower interest rate or change their loan term. They also can switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan to avoid interest rate fluctuations.

A Streamline loan is basically a rate and term refinance, which means you can't borrow equity as cash unless it's to pay for energy efficient improvements to your home. If you need to borrow equity for another reason, such as debt consolidation or to pay unexpected bills, consider a VA cash-out refinance vs. an IRRRL.

The VA requires a Streamline refinance to provide a net tangible benefit (NTB) to the servicemember or veteran. The NTB can be one of the following:

• If you’re refinancing from one fixed-rate loan to another, you must be able to reduce your mortgage rate by at least 0.5%.
• If you’re going from a fixed-rate loan to an ARM, your new loan's interest rate must be at least 2% less than your current loan's rate. You can get there by purchasing mortgage points, but if the cost is more than 1% of the loan amount, you must have 10% equity. Points can’t exceed 2% of the loan amount.
• The new loan term can’t be longer than 30 years or 10 years more than the current term, whichever is shorter.
• In all cases, the principal and interest payment must be less than it is on your current loan.

While there’s no VA loan credit score requirement, lenders may establish their own minimum credit score requirement.

Finally, your current loan must meet seasoning requirements:

• At least 152 days must have passed between the first payment due date on your current loan and your application for the new loan.
• At least 212 days must pass from the due date of the first payment on your current loan and closing on your new loan.
• At least 6 months of consecutive payments must be made on the current loan.

How much does a VA IRRRL cost?

Closing costs for VA loans are similar to the cost of other refinances, ranging from 3% – 6% of the loan amount. However, it’s worth noting that you may see some savings based on the following:

• Getting a new home value may not be necessary.
• As opposed to the first time around when the funding fee was based on your VA loan down payment, it’s 0.5% on all VA Streamlines. You may be exempt if you receive VA disability, you’re an eligible surviving spouse, or you’re currently on active duty after having received a Purple Heart.

Does a VA IRRRL require an appraisal?

In most instances, you don't need an appraisal and won’t have to pay a VA appraisal fee. The only time an appraisal is required is when you’re going from a fixed-rate loan to an ARM, and getting to the required interest rate decrease by buying mortgage points. This is a huge benefit to this type of refinance because you can save on closing costs.

Who’s eligible for a VA IRRRL refinance?

Qualifying for a VA IRRRL is based on the following requirements. It’s important to note lenders may have their own policies that apply.

Lender-specific requirements for VA Streamline refinances

While Veterans Affairs sets overall requirements for VA loans, lenders can set additional requirements. Here are two variations that Rocket Mortgage^® has compared to standard VA policies:

• Because you already have a VA loan, it’s generally not required to resubmit your Certificate of Eligibility. The one exception is if you’re a qualified surviving spouse receiving or eligible to receive Dependency and Indemnity Compensation.
• While the VA sets no credit score requirement, lenders typically set their own. Rocket Mortgage requires a credit score of at least 580 for VA Streamline refinances.

If you do need to have your COE, lenders including Rocket Mortgage can help you find it if you have discharge documents or your benefits eligibility.

How to apply for a VA IRRRL refinance

If you’re interested in a VA IRRRL, here’s what you need to apply.

1. Collect your documents

Part of the point of a VA Streamline is that it requires less documentation. Lenders also may have their own requirements. Here's what you may need to apply for an IRRRL:

• Evidence of an existing VA loan. This may be verified through mortgage statements or your credit report.
• Certificate of Eligibility. Again, the lender may not need this, but it’s good to have it handy.
• Assets. If your lender wants to verify your assets, you can be prepared with things like bank, brokerage, and retirement account statements.
• Income. If a lender wants to verify income, they’ll do so with things like W-2s, 1099s, tax returns, and benefit award letters.

2. Choose a VA-approved lender

When choosing mortgage lenders, you should know that when getting a VA Streamline or any other VA loan, the lender has to be approved by the VA. You can also compare approved lenders to determine which one offers the best deal.

Going with Rocket Mortgage for your VA refinance allows you to work with a VA-approved lender with a mortgage process that’s designed around you.

Easy upload of your mortgage documents allows you to handle your application when it’s convenient for you. At the same time, the guidance of our Home Loan Experts means you can rely on a partner to help you along the way.

3. Submit your application

Your application covers standard information like your identity, the address and details of your home, your income, and the value of your financial assets. The good news is your lender should be filling this out with you as you give them documentation, so if you have your info, this isn’t a separate step that’s going to take more time.

4. Go through the underwriting process

Underwriting is the process of analyzing loan risk to make sure that you meet the lender standards. It includes a review of your credit history and all the documentation that you provided. There’s also a title search so the lender knows about all existing liens and other things like easements and encumbrances affecting ownership rights.

In a typical mortgage process, going from application to close can take 30 – 45 days. In a purchase or cash-out refinance, this would also typically include an appraisal, but because this generally isn’t necessary on VA Streamlines, the process should move faster.

5. Close on the loan

Closing is where all the paperwork is signed and your new loan is finalized. This is also where you would pay any closing costs associated with your loan. These are typically 3% – 6% of the loan amount. Lenders may agree to roll closing costs into your loan amount in exchange for a higher interest rate, though this will cost you more overall.

VA Streamline closing costs may be lower because of the reduced funding fee for refinances and no need for an appraisal most of the time.

Advantages and disadvantages of a VA IRRRL

When thinking about whether you should refinance and how, there are advantages and disadvantages to a VA IRRRL.

Pros

• Potential for a lower monthly interest rate: In many cases, one of the primary benefits of a VA Streamline is the lower monthly interest rate that comes with it.
• Potential lower monthly payment: This is also typically a primary benefit of this loan option. Often the interest rate and the payment must go down to meet net tangible benefit tests.
• Lower VA funding fee: The funding fee on VA Streamlines is only 0.5% of the loan amount. On regular VA purchase and refinance loans, this is between 1.25% – 3.3%.
• Potential change in mortgage structure: Besides reducing your rate or payment, you might do a VA IRRRL to switch from an ARM to a fixed-rate mortgage. This would buy some payment certainty for the future.

Cons

• You must be current on your mortgage: At least six consecutive payments must be made on your previous VA loan before you can refinance with an IRRRL.
• You must meet strict eligibility requirements: In addition to meeting VA requirements, you may have to meet lender standards for a minimum credit score and any necessary assets and income.
• You may have to pay closing costs: While it’s possible to roll closing costs into the loan amount, you likely will pay more overall for your loan.
• Your mortgage must be seasoned: You can’t close on your new loan until your current one is at least 212 days old.
• You can’t take cash out: If you’re looking to borrow your home equity, that’s going to require a full VA refinance process.

Alternatives to a VA IRRRL

Because a VA Streamline doesn’t allow you to borrow your home equity, it’s not a good option if you’re looking for cash to consolidate debts or pay for home improvements. In this case, a cash-out refinance would be the way to go.

The other thing to consider about any mortgage is that it’s not a short-term financing solution. If you’re looking to borrow with a term of 3 – 5 years, a personal loan may be a better option.

FAQ

Now that we’ve gone over the basics, let’s answer a few more of your questions.

Can I get money back from a VA IRRRL refinance?

A VA Streamline is not meant to access equity from your home. However, you can receive up to $500 in incidental cash back because of fee adjustments during your mortgage process.

How much does a VA IRRRL cost?

Typical closing costs are between 3% and 6% of the loan amount. On VA Streamlines, these may be lower based on the smaller funding fee and often skipped appraisal. There are also strict rules around allowable and nonallowable fees on VA loans.

Can I buy discount points to lower my interest rate?

Yes. The only limitation on number of mortgage points you can buy is that you’re limited to two if you’re buying down the interest rate on an ARM when switching from a fixed rate.

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

As long as the home was your primary residence at some point, you can use a VA Streamline to refinance an investment property.

The bottom line: VA Streamline refinancing can help you

A VA IRRRL allows you to refinance an existing VA loan to reduce your monthly payment and interest rate or gain certainty by transitioning from an ARM to a fixed-rate mortgage. There is typically no appraisal required and the funding fee is lower. On the downside, it’s not meant for taking cash out.

Whether you’re considering a VA Streamline or another option, you can apply online.

¹ Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

² The VA Streamline program may have stricter requirements in some states. In order to qualify for the VA Streamline program, you must have a VA loan. The VA Streamline is only available on primary residences. Cash-out transactions are not allowed. In order to qualify for a VA Streamline, a 0.5% minimum reduction in interest rate on the previous fixed-rate loan must occur if the new loan will be a fixed rate or a 2% minimum reduction in interest rate on previous adjustable rate mortgage loan must occur; a minimum of 6 months of consecutive mortgage payments must be paid on the current loan at the time of application. Some states may require an appraisal. Additional restrictions/conditions may apply.

³ Refinancing may increase finance charges over the life of the loan.