Do You Qualify for These 6 Benefits of a VA Streamline Refinance?

1.   VA IRRRLs are faster and more convenient than conventional refis

The VA streamline IRRRL program is a simple way to refinance your current VA loan for a new one to lower your rate, change terms, or switch from an Adjustable Rate Mortgage to a fixed rate. Lenders can use information gathered during your original VA loan application to approve the refi, making the process faster and easier than other mortgages.

Common reasons to apply for an IRRRL are to reduce your current loan term from 30 years to 15 years or to trade an adjustable rate for a fixed rate. And the core motivation for the VA IRRRL is the one that inspired its name: to reduce your interest rate. 

A word of caution before we go further. The streamline does not offer the option to access your home equity. If you’re interested in tapping into equity, consider a VA cash-out refinance instead.

2. A VA streamlined refi can save you money

There are many compelling benefits of a VA IRRRL. The name “streamline” comes from the loan’s reputation for not only easier qualification requirements and faster processing times, but also lower costs than conventional refinances. Since many of the costs of a typical refinance are eliminated and an appraisal is not usually necessary, you’ll save hundreds of dollars compared with a conventional refinance.

VA IRRRLs have closing costs to cover lender and third-party fees, but these are typically lower than they are for other loans. You’ll also pay less for the VA funding fee, which is 0.5 percent of the loan instead of 1.25 percent to 2.15 percent for most first-time purchase loans. (More on that later.) If reducing upfront expenses is important, you may be able to roll your closing costs and funding fee into the loan.

3. Occupancy requirements are less strict

VA purchase loans and cash-outs require the property to be your primary residence. With a streamline, you just need to show that the home was a primary residence in the past. That opens up the opportunity to use an IRRRL for second homes and investment properties.

4. Lower interest rates for VA IRRRLs

VA loans are known for offering lower interest rates compared to other mortgage types. And because the IRRRL is considered a rate-and-term refinance that doesn’t offer cash back at closing, the loan is less risky for lenders. That means you’ll often get the best rates available.

5. Reduced funding fees

Unless you received an exemption, you paid a VA funding fee for your purchase loan that helps offset costs of this government-backed program for U.S. taxpayers. Streamline refinances also require a VA funding fee, but it is lower than what you paid originally.

All VA streamlines have a funding fee of just 0.5 percent. Here are some examples of what that would look like with different loan amounts.

6. Lower closing costs

With fewer verifications, most VA streamline loans close faster than typical purchase loans do. 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.

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. Just remember you will end up paying more in interest.

Who can get a VA streamline refinance?

You can qualify for a VA IRRRL if you meet the following requirements.

You already have a VA loan

The VA IRRRL program is for current VA loan holders only. That’s how lenders can reference your past certificate of eligibility (COE), credit report, income records, and appraisal to streamline the approval process.

If you don’t already have a VA loan but want to take advantage of its many benefits, you may be able to refinance with a VA cash-out instead.

Your mortgage is current and seasoned

The biggest indication of whether you can afford the new loan payments is if you’ve consistently paid your current mortgage. Your lender will look at your payment history and the time that has elapsed since your original mortgage (also called seasoning).

A VA streamline requires that you…

• Wait 210 days from the closing of your original mortgage
• Make six consecutive monthly payments on your current loan before applying for the VA streamline
  
• Wait 210 days from your first mortgage payment and the closing of the streamline
  

The refinance is beneficial

A lender must see there is a “net tangible benefit” to approve your IRRRL. That means you’re not just applying for the sake of changing things up – and a lower interest rate alone, for example, doesn’t guarantee you’ll save money over the life of the new loan compared with your current one. Typically, a net tangible benefit is determined when a loan either saves you money or gets you out of a riskier loan.

Bottom line: Is a VA IRRRL worth it?

As with any refinance, it’s important to weigh the VA IRRRL program pros and cons through the lens of your situation. An important question to ask yourself is if you plan to stay in your home long enough to make the cost of the refinance worth it. Your loan estimate will outline these costs so you know the details ahead of time and can make an informed decision.

Because costs are lower and you’ve established there is a net tangible benefit, a VA streamline refinance is usually worth it as long as you keep your property for at least a few years.

Best VA IRRRL lenders

The best VA-approved lender will offer more than great rates. Look for someone with vast experience and a passion for serving military families.