What Every Servicemember Needs to Know About VA IRRRLs

If you are a military homeowner or homebuyer, you may have heard about the VA IRRRL—also known as a streamline refinance. In this article, we will discuss the VA IRRRL program requirements, closing costs, benefits, and drawbacks, to help you make an informed decision.

What is the VA IRRRL program?

IRRRL stands for interest rate reduction refinance loan. This popular government-backed loan program is designed to help eligible military homeowners refinance your current VA loan to a lower interest rate or shorter term without the need for an appraisal or credit check. An IRRRL loan can only be used to refinance an existing VA loan.

How does an IRRRL refinance work?

The VA IRRRL program works by replacing your existing VA loan with a new loan that has a lower interest rate. You will still have the same mortgage balance, but the monthly payments will be lower, allowing you to save money in interest charges over the life of the loan. The IRRRL refinance process is typically quick and easy and requires minimal documentation.

What are the qualifications?

The key to qualifying for a VA streamline is to demonstrate you can afford and will benefit from the new loan. You must meet all of the following VA IRRRL requirements:

• You are a current VA loan borrower.

• You have made on-time mortgage payments for the past 12 months.

• It has been at least 210 days between the first due date of your current loan and the closing of your new loan (also known as the seasoning period).

• You have proof that you live in or have lived at the house as your primary residence.

• There is a net tangible benefit to refinancing, either by saving money, or getting out of a riskier loan such as an adjustable-rate mortgage (ARM).

What documents do I need?

A streamline refinance requires less documentation than a standard refi. VA IRRRL document requirements include the following:

• Current mortgage statement

• VA loan paperwork

• Certificate of Eligibility (COE)

• A recent pay stub or proof of income

How much are VA IRRRL closing costs?

The VA IRRRL program has lower closing costs than a traditional refinance, thanks in large part to a lower VA funding fee. You also may be able to roll the closing costs into the new loan. The closing costs may include:

• Loan origination fee.

• VA funding fee: 0.5% of the loan amount (may be waived for disabled veterans).

• Title search and title insurance fees.

• Recording fees.

• Other fees, such as credit report, flood certification, and pest inspection fees.

What are the pros and cons?

A VA IRRRL is not the right choice for every situation. Here are VA IRRRL program pros and cons to help you make an informed decision:

IRRRL Pros:

• Lower interest rate: An advantage of the VA IRRRL program is the ability to refinance to a lower interest rate, which can save you money on interest charges over the life of the loan.

• Lower closing costs: VA IRRRL closing costs are typically lower than a standard refinance, which can save you thousands of dollars in upfront costs.

• No appraisal, credit check, or income verification: The VA IRRRL program typically does not require a new appraisal, credit check, or income verification, which can make the process faster and easier.

IRRRL Cons:

• Limited to VA loans: A VA IRRRL can only be used to refinance an existing VA loan and cannot be used to refinance a conventional or FHA loan.

• May not always result in lower monthly payments: While the VA IRRRL program can lower your interest rate, it may not always result in lower monthly payments, especially if you opt for a shorter loan term.

• Lower rates are not always available. Interest rates fluctuate over time. Depending on when you purchased your home, the current rates may not be lower than what was available previously. In that case, you may be able to buy down your rate.

More VA IRRRL FAQs

Still considering refinancing with a VA IRRRL? Here are some frequently asked questions about the program to help you better understand the process.

Q: Do I ever need to get a new appraisal for the VA IRRRL program?

A: Many borrowers are happy to learn an appraisal is not usually necessary for a VA streamline. That saves time and hundreds of dollars and avoids loss if your home value has dropped since your last appraisal. There is an exception if you’re refinancing from a fixed rate to an ARM. Keep in mind not all lenders offer VA ARMs.

Q: Can I get cash out with a VA IRRRL?

A: No, it is not possible to tap into equity with an IRRRL. If you want cash at closing, consider a VA cash-out refinance instead. That process typically takes longer because it requires more documentation and an appraisal. 

Q: Is there a no closing cost option?

A: A no closing cost refi means you trade an upfront payment for a higher loan balance or interest rate. It may be possible to roll the closing costs into the new loan with an IRRRL. Keep in mind that this will increase your loan balance and interest charges.

Is it time to claim your refinancing benefit?

A VA IRRRL is a great option if you want to lower your interest rate and save money on your mortgage. With its simple eligibility requirements, minimal documentation, and lower closing costs, it is an excellent choice for many eligible servicemembers. If you are interested in an IRRRL, find a knowledgeable VA loan lender that can walk you through the process with confidence.