VA IRRRL: What It is and How It Works
If you’re looking for an easy way to refinance a loan backed by the U.S. Department of Veterans Affairs (VA), the VA IRRRL can help. Short for “interest rate reduction refinance loan,” the VA IRRRL has relatively straightforward approval guidelines, lower VA closing costs and less paperwork than a regular VA loan.
- What is a VA IRRRL?
- How does a VA IRRRL work?
- VA IRRRL requirements
- Can you roll closing costs into a VA streamline refinance?
What is a VA IRRRL?
A VA streamline refinance replaces your current VA loan with a new VA loan, typically at a lower rate. Active-duty service members, veterans and eligible surviving spouses with a current VA loan are eligible for the benefits of the VA IRRRL program.
If mortgage rates are falling, it’s worth it to check current VA IRRRL interest rates. A VA streamline refinance might help you by:
- Lowering your monthly payment and interest rate.
- Replacing an adjustable-rate mortgage (ARM) with a fixed-rate mortgage.
- Swapping a fixed-rate mortgage for an ARM to save money in the short term.
- Shortening your term from 30 years to 15 years to pay your loan off faster and save money on interest charges.
How does a VA IRRRL work?
Because the VA IRRRL is a VA-to-VA refinance, the mortgage process is much easier to follow than a regular VA loan. The VA interest reduction program offers special qualifying flexibility.
- No income documents are needed. You won’t need to dig up pay stubs or W-2s.
- No home appraisal is required. No appraisal means no appraisal fee.
- No minimum credit score. The lender will confirm your mortgage payment is current, but you won’t need to provide credit information.
VA IRRRL requirements
You’ll typically need to meet five conditions to be approved for a VA streamline refinance.
- Prove on-time mortgage payments. Your payment has to be current when you apply for the loan. If you’re behind on payments, the lender may ask for extra proof that you can repay the loan.
- Wait seven months since getting your last VA loan. You won’t be able to close on a VA IRRRL until you’ve made seven payments on your current loan. This rule was added to VA guidelines in 2019 to prevent “loan churning,” which is repeatedly refinancing a mortgage with little to no benefit.
- Have your rate reduced by 0.5%. Your new VA IRRRL rate must be at least a half a percentage point lower than your current rate.
- Keep payment increases minimal. Your new mortgage payment cannot go up by 20% or more.
- Verify a 36-month cost breakeven. To ensure lenders don’t charge excessive closing costs, the VA mandates that closing costs are recouped within 36 months. This is known as the breakeven.
Can you roll closing costs into a VA streamline refinance?
Closing costs for a VA IRRRL may be rolled into the loan amount. Typical costs include:
- A 0.5% funding fee. The VA streamline refinance funding fee is only a half percentage point of your loan amount — notably less than the 3.6% for a regular VA refinance for subsequent use. The VA funding fee is required to offset the cost of the program to taxpayers, but it can be waived if you have an eligible service-related disability.
- Flat lender fee. Lenders can’t charge more than a 1% VA loan origination fee including for a credit report, flood certification and tax monitoring costs.
- Allowable VA charges. The VA prevents lenders from charging attorney fees, brokerage fees or prepayment penalties.
- No more than two discount points can be rolled in. Discount points can be used to get lower VA IRRRL rates, as long as the total costs meet the 36-month break-even test.
- Cashback limited to $500. You can roll your costs in as long as you don’t pocket more than $500 in extra cash.
- Cash-out exception for certain upgrades. If you’re trying to save on utility bills and your mortgage payment, VA IRRRL loan guidelines permit you to borrow an extra $6,000 to make energy-efficient improvements.