Updated April 7, 2023
Benefits of Refinancing with a VA Streamline Refinance
The VA streamline refinance is a great way to save money on your mortgage. The VA streamline loan is only for borrowers with a current VA loan. If you've never used your VA home loan benefit, you'll need to apply for a VA mortgage or use the VA cash-out refinance option to refinance. But those loan programs have benefits too.
What is a VA Streamline Refinance?
The VA streamline refinance is a chance for veterans with a current VA loan to refinance with easier requirements. The VA allows lenders to use your original qualifying factors from when you bought the home as long as you benefit from the refinance financially.
What the VA streamline refinance is NOT is a cash-out refinance. Suppose you want to tap into your home's equity, using it for home improvements, debt consolidation, or any other purpose. In that case, you'll need a VA cash-out refinance, which has stricter qualifications to ensure you can afford the higher payments
VA IRRRL Occupancy Requirements
Perhaps one of the most significant benefits of the VA streamline refinance is the occupancy requirements. As you probably know, when you took out your VA loan, you had to certify that you'd live in the home as your primary residence. The VA isn't in the business of guaranteeing loans for second homes or investment properties.
But they grant an exception for the VA IRRRL program. You must certify that you occupied the property before you applied for the VA IRRRL program, but you don't have to live in the property after refinancing. It's the only VA loan program that allows this exception.
Many veterans use the opportunity to keep the home and rent it out while using their remaining entitlement to buy another primary residence.
In addition to the relaxed occupancy requirements, veterans can enjoy the following benefits when using the VA IRRRL program.
1. Re-Qualifying is Easier
Although every lender has their own rules, one of the best benefits of the IRRRL program is you don't have to re-qualify for the program. Lenders can use your credit score, income, asset, and debt ratios from when you bought the home. The VA's only requirement is that you prove you made your last 12 months of mortgage payments on time.
The VA assumes if you can make your higher mortgage payments on time, the new refinanced payment will be lower and easier to afford. Check with your lender to see what their specific requirements are.
2. You Might Save Money
The VA requires borrowers to have a net tangible benefit for refinancing, which usually means that you save money. Whether you lower your interest rate, take on a shorter term, or refinance out of an ARM loan, you may save money on your payment or over the life of the loan.
3. You May Not Need a New Appraisal
Most borrowers don't need a new appraisal to use the VA IRRRL program. This means even if your home value dropped, you could still refinance using the original home value. Not only that, but you save the $300 - $500 a new appraisal costs.
4. Faster Closing
With fewer verifications, most VA streamline loans close faster than a purchase loan. Since you don't have to wait for an appraisal or provide proof of your income or assets, underwriters can swiftly underwrite your loan and get you to the closing table faster. Ask your lender how long it will take your loan to close.
5. Reduced Funding Fee
If you remember, when you took out your VA purchase loan, you paid a funding fee. It was likely a few thousand dollars or more that you had to pay at the closing or wrap into your loan amount. Each time you use your VA benefits, you must pay the funding fee again. However, VA IRRRL has a reduced funding fee.
Rather than the 1.25 percent to 2.15 percent that most veterans pay when they buy a home or use their benefit for the first time, IRRRL borrowers pay only 0.5% of the loan amount, which is a significant savings.
6. You May Roll Your Closing Costs into the Loan
Most refinance loans have closing costs, but not only do VA IRRRL mortgages have lower closing costs than most loans, but you can also roll them into your loan if you don't have the funds. This lowers the cash you'll need to close and may even speed up the closing process.
In typical VA loan fashion, VA streamline loans have great rates too! Because you aren't using your home's equity and you're likely making your mortgage even more affordable, most borrowers can secure the best interest rates or rates even lower than what they currently have.
Check Out Your Possibilities
The VA streamline refinance is beneficial for borrowers with a current VA loan who want to take advantage of lower interest rates or a better term. That’s especially true if you are in a better financial position now and want to shorten your loan's term, or you bought your home when rates were higher and want to take advantage of today's low rates.