Do You Qualify for a VA IRRRL?

When it comes to refinancing your mortgage, there are a number of benefits to be excited about. You can lower your interest rate and monthly payments, change your terms to pay it off faster, and more.

If you are a Veterans Affairs (VA) home loan borrower, you may also be eligible for a faster refinance process through the VA’s streamline refinancing (IRRRL) program. But who exactly qualifies for this type of refinance? We will go over the requirements you must meet to be eligible and start the VA IRRRL process.

What is the VA IRRRL program?

A VA streamline refinance is often referred to as a VA IRRRL, which stands for interest rate reduction refinance loan. It is a loan program backed by Veterans Affairs and offered by VA-approved lenders.

The program is designed to help eligible military homeowners refinance their current VA loan to a lower interest rate or shorter term without the need for an appraisal or credit check.

Who can get a VA streamline refinance?

In order to qualify for a VA IRRRL, there are certain guidelines you must meet before submitting your application. Borrowers must meet all of the following VA loan refinance requirements:

• You are a current VA loan borrower

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

• You have proof that you live in, or have lived in, 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)

VA IRRRL requirements in depth

1. You already have a VA home loan.

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

If you do not 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 refinance instead if you meet VA requirements.

2. Your current VA mortgage meets the seasoning requirements.

The biggest indication of whether you can afford the new loan payments is if you have 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

3. There is a net benefit to the refinance.

A lender must see there is a net tangible benefit to approve your IRRRL. That means you are not just applying for the sake of changing things up. For example, a lower interest rate alone does not guarantee you will 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.

What documents do you need for VA IRRRL application?

Part of the reason IRRRLs have the namesake of streamline refinance is due to their notably quick process. Part of what helps speed up the process is that a VA IRRRL requires much less documentation than a standard refinance. The documents that you will be required to provide your lender include:

• Current mortgage statement

• VA loan paperwork

• Certificate of Eligibility (COE)

• A recent pay stub or proof of income

Why get a VA IRRRL?

Now that you better understand the borrower requirements of a VA IRRRL, you may be wondering what the benefits of getting one are. Though they do not offer you the opportunity to cash out on your home equity, there are many reasons why a VA streamline refinance may be a great option for you, including:

VA IRRRLs are faster and more convenient than conventional refinancing

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 are interested in tapping into equity, consider a VA cash-out refinance instead.

A VA streamline refinance can save you money

Since many of the costs of a typical refinance are eliminated and an appraisal is not usually necessary, you can 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 will also pay less for the VA funding fee, which is 0.5% of the refi instead of 1.25% to 2.15% for most first-time purchase loans. If reducing up-front expenses is important, you may also be able to roll your closing costs and funding fee into the loan.

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.

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 does not offer cash back at closing, the loan is less risky for lenders. That means you will often be eligible for lower rates.

Is a VA IRRRL worth it?

Regardless of the type of refinance, it is important to weigh the pros and cons through your unique 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 have 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.