VA Streamline Refinancing (IRRRL) Benefits

When it comes to your Veteran's Affairs (VA) benefits, a streamline refinance can be a great way to save money on your mortgage. VA streamline refinancing (also called a VA IRRRL) is only available for borrowers who currently have a VA home loan. But even if you are a military member who has not taken advantage of their home loan benefit, it is good to understand that these programs are available throughout every step of your homebuying and homeownership journey.

We will focus on how a VA Interest Rate Reduction Refinance (IRRRL) works and the ways in which current VA loan borrowers can benefit. 

What is a VA streamline refinance?

The VA streamline refinance is a chance for veterans with a current VA loan to refinance with more lenient requirements. Your lender is able to use your original qualifying factors in order to speed up the refinance process. This means you will not have to worry about collecting your Certificate of Eligibility (COE) again and your VA funding fee is reduced to 0.5% of the loan amount if applicable.

It is important to note, though, that an IRRRL is not a cash-out refinance. If your refinance goals include tapping into home equity for funds, then you may be more interested in a VA cash-out refinance. Unlike a streamline refinance, you do not need a current VA loan to utilize the VA cash-out benefit. However, it does have stricter borrower qualifications in order to ensure you can afford the higher payments.

VA streamline rates

Like most VA home loan programs, a VA streamline refinance provides access to competitive rates, too. Since you are not tapping into home equity, it is likely that the refinanced mortgage is even more affordable and you will be able to secure a top-notch interest rate.

VA IRRRL occupancy requirements

VA streamline refinances are also known for their exceptions to the VA’s occupancy requirements. When you took out your VA home loan, you had to certify that the home you were buying was being used as your primary residence. In the case of a VA IRRRL, they grant exceptions. Though you do have to confirm that you occupied the home as your main residence prior to applying for the VA IRRRL program, you are not required to continue living on the property after you have refinanced.

This means you can choose to move and continue to use the house as a second home or investment property. It is 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. 

Seven IRRRL benefits you do not want to miss

In addition to the relaxed occupancy requirements, veterans can also enjoy the following benefits when using a VA streamline refinance:

1. Requalifying is simple

As you may know from your experience of applying for your original mortgage, every lender has their own rules and borrower requirements. However, a VA IRRRL does require you to requalify. Your lender will need to check your credit score and ensure the minimum lender requirements are met; however income, assets, and debt-to-income (DTI) ratio are not reviewed. The requirements are that there have not been any late payments in the last 12 months and that 6 consecutive payments must have been made and it must be at least 210 days from the original date of the loan.

This is because the VA can assume that since you have been able to keep up with higher mortgage payments in a timely manner, the new refinanced payments will be lower and therefore even easier to afford. 

2. You may save more money

Another qualification that borrowers must meet to be approved for a VA streamline refi is proof that there is a net tangible benefit for refinancing. This typically means that as long as you can be approved for new loan terms that result in a financial benefit to you, such as lower monthly payments due to an interest rate of at least 0.5% lower, or a shorter term, you are a good candidate for a refinance.

Whether you lower your interest rate, take on a shorter term, or refinance out of an ARM loan, you may save more money on your payments or over the life of the loan. 

3. You will not need a new appraisal

VA IRRRLs also do not require a new appraisal conducted be as part of the VA IRRRL program. So, even if the value of your home has dropped, you may still qualify for the refinance using the original estimated value. This will also save you about $300 to $500 on your appraisal and closing costs.

4. Faster closing timeline

Due to the smaller list of borrower requirements and verifications, you can expect your VA streamline loan to close much faster compared to your purchase loan and other refinance options. This means the loan can move swiftly through underwriting and get you that much closer to closing day.

5. Funding fee is reduced

You may remember that one of the few costs you had to pay for your VA home loan was the VA funding fee. Whether you pay up front at closing or roll the fee into your total loan amount, each time you utilize your VA benefits you have to pay the funding fee again. However, in the case of a VA IRRRL, that fee is significantly reduced.

Rather than the 1.25% to 2.15% that you paid when you bought a home or used your benefit for the first time, IRRRL borrowers pay only 0.5% of the loan amount.

6. Ability to roll your closing costs into your loan

Most refinance loans have closing costs, but VA IRRRL mortgages have lower closing fees than most loans. You can also roll them into your loan if you do not have the funds upfront. This lowers the cash you will need to provide in order to close and may even speed up the closing process.

7. Use the streamline refinance benefit as many times as you need

Another great aspect of the VA streamline refi program is the ability to use the benefit as many times as you need. The advantages do not diminish, regardless of how many times you use it. However, you will have to continue to meet your lender’s requirements and prove a net tangible benefit for each use of a VA IRRRL.

Are you ready to use your IRRRL benefits?