How to Save Money with a VA Streamline Refinance (VA IRRRL)
If you already have a VA loan, you may be eligible to refinance and save money without all the paperwork hassle using the VA interest rate reduction refinance loan (IRRRL). You can replace your current VA mortgage with a new one at a lower rate or shorter term, and even roll closing costs into the loan. Knowing how a VA IRRRL works may put you on a fast path to better mortgage terms.
What is a VA IRRRL?
The VA IRRRL is a refinance program that allows military borrowers to replace an existing VA loan with a new one at a lower rate, more stable payment or shorter term, such as a 15-year fixed-rate mortgage. It’s often called a VA “streamline” refinance, since you can skip the income documentation and VA home appraisal you’d typically need with a regular VA refinance.
Eligible borrowers can roll VA closing costs into an IRRRL and, in some cases, even add up to $6,000 toward energy-efficient improvement expenses to the balance.
How does a VA IRRRL work?
The VA streamline process is very simple — most lenders take the following steps:
- Verify you have a current VA loan
- Verify you still meet VA eligibility requirements
- Confirm you’ll save money or prove the benefit of the refinance
- Verify the payoff balance of your current loan
- Add the closing costs to your loan or prove you can pay them out of pocket
- Replace your old VA loan with a new one
Pros and cons of a VA IRRRL
Before you apply for a VA streamline refinance, consider the following benefits and drawbacks:
|You can save money with very little financial documentation and no appraisal expense||You only qualify if you have a current VA loan|
|Your funding fee is cheaper than a regular VA refinance||You must wait at least 210 days since your last VA loan closing|
|You can roll in all of your closing costs plus the cost of energy-efficient improvements||You won’t qualify if you’re in default on any federally backed loans (like student loans)|
How to get a VA IRRRL
Keep this to-do list handy once you’re ready to apply for a VA streamline refinance:
- Dig up your closing papers.Lenders will need to verify the date you closed on your current VA loan, so having your closing paperwork handy will save time.
- Provide a current mortgage statement.You’ll need this so the lender can order a payoff to replace your current mortgage with a new one.
- Check your certificate of eligibility.Most military borrowers can obtain their certificate of eligibility (COE) online to prove they still have enough entitlement for the refinance. VA borrowers with a service-related disability can also show the lender if they are exempt from the 0.5% funding fee.
- Shop for a lender.Not all lenders are VA-approved, so you may need to reach out to more than three to five companies to get competitive VA IRRRL rates. Try a VA comparison rate tool to speed up the process and have lenders call you.
- Decide how to handle your closing costs.Let the lender know if you want to add your closing costs to the loan balance or pay them out of pocket.
- Review your closing disclosure and sign your documents.You should receive a closing disclosure at least three business days before your closing. Make sure the figures are correct and provide any final items requested by your lender.
VA streamline IRRRL requirements
Although you don’t have to meet any income or home value requirements, the VA IRRRL does have some other very specific hoops you’ll need to jump through for approval.
Seasoning. At least 210 days must have passed since you took out your current VA mortgage.
Credit Alert Interactive Verification Reporting System (CAIVRS) check. Lenders must check the CAIVRS database to confirm you don’t have any defaulted federal debt. That includes student loans, Small Business Administration (SBA) loans or any previous mortgages backed by the Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA).
Break-even point. The lender must confirm that you’ll recoup your closing costs within 36 months, or your IRRRL application will be denied. For example, if you’re saving $100 per month, your closing costs can’t exceed $3,600 to qualify ($3,600 divided by $100 per month savings = 36-month break even).
Benefit. Your new principal and interest payment must be lower than your current payment, unless you’re refinancing to a safer loan product like from an adjustable-rate mortgage (ARM) to a fixed-rate loan. The VA makes exceptions to the savings rule if you’re financing energy-efficient upgrades or shortening your term.
Funding fee. VA borrowers only have to pay a VA funding fee equal to 0.5% of the loan balance for a VA streamline loan. The funding fee is charged to offset the cost of the program to taxpayers, and typically costs between 2.3% and 3.6% for a regular refinance.
Frequently asked questions
Can I take extra cash out with an IRRRL?
No, unless you’re borrowing up to the $6,000 limit to pay for energy-efficient improvements that can be completed within 90 days of closing.
Can I pay discount points to get a lower IRRRL rate?
Yes, but only two mortgage points can be rolled into the loan amount. Any additional points must be paid from your own funds.
How much are VA streamline closing costs?
You’ll typically pay less than the 2% to 6% of the new loan that you’d normally pay for a regular VA refinance. The funding fee is only 0.5% of your loan amount and you won’t pay for an appraisal.
Can I refinance a 30-year VA loan to a 15-year VA loan?
Yes, but you may have to provide income documentation if your payment is at least 20% higher than your current payment.
Can I pay off a second mortgage, too?
No. The VA streamline loan can only replace your current VA loan balance.