What is a VA IRRRL?
Point of Interest
The VA streamline refinance program makes it easy for veterans and their surviving spouses to refinance their home loan to a new mortgage at lower rates.
VA streamline refinance is a fast-lane option to shift your VA mortgage balance to a loan with a lower interest rate. This program is also known as the VA Interest Rate Reduction Refinance Loan, or VA IRRRL.
A fast, easy application process and low costs make this an attractive refinancing strategy for qualifying veterans. If you have a VA mortgage at a higher rate than what’s currently offered, the IRRRL VA program could lower your payments and save you a lot of money.
How does a VA streamline refinance (IRRRL) work?
A VA IRRRL folds the balance of your old mortgage into a new loan. This refinancing option is only available to veterans and their surviving spouses who already have a home loan through the VA.
Most borrowers use VA streamline refinancing to take advantage of lower rates and reduce their payments. Even a small reduction in your interest rate can lower your payments significantly and save you a great deal of money over the life of your loan.
Refinancing with the IRRRL VA program also allows you to make changes in your loan details. As you’re setting up the new loan, you can:
- Shorten the term of your loan
- Get out of an adjustable-rate and into a fixed loan
- Add a new spouse’s name to your mortgage
- Remove a former spouse after a divorce
However, you can only enter the IRRRL program when lower interest rates are available or when you’re refinancing a VA adjustable-rate loan into one with a fixed rate.
The VA will only let you use the program when there’s a financial benefit to you, either a lower rate or lower payments. That rule exists because unethical lenders were getting too aggressive about selling IRRRL loans to veterans. The VA now requires you to wait until at least 210 days have passed or you’ve made six monthly payments on your existing loan before you refinance.
What are the advantages of the VA IRRRL?
Since the VA and your bank already familiar with you and have experience with your house, the process is much easier than most refinancing loans. For example, you may not have to go through an appraisal, income verification, or underwriting process.
Unlike your original VA mortgage, IRRRL refinancing doesn’t require you to live in your house as a resident. If you’re interested in using the property as a rental or letting one of your kids live there, refinancing could offer a legal window for you to move and keep your house.
What are the drawbacks of a VA streamline refinance loan?
Unlike some refinancing opportunities, you can’t borrow any extra cash. You’re limited to the outstanding balance on your existing loan. If you want to borrow new funds for home improvements or other expenses, you’ll need to look into a VA cash-out refinance instead.
The only exception is the Energy Improvement Mortgage, which lets you access extra capital for specific energy-saving home improvements. That program can be combined with the IRRRL program.
How to get a VA IRRRL
Although the IRRRL has a streamlined application process, there are some very specific elements you need to understand before you apply.
This loan is only available to qualified veterans and surviving spouses who currently have a VA loan on their home. That means you’ve already met the VA’s service requirements for the IRRRL and don’t need to get a new certificate of eligibility from the VA office.
You need to live or have previously lived in the house you are financing. You can’t finance an investment property that you’ve never used as your home.
You can only apply for an IRRRL if the new loan will lower your payments or interest rate. You are also required to have made at least six monthly payments on your existing mortgage before refinancing with an IRRRL from the VA.
Finding a lender
You’ll need to work with a Department of Veterans Affairs approved lender. The lender that holds your original VA mortgage might be the easiest to work with — especially if you have a good payment history with them. However, your current lender may not offer the best rate.
To shop for the best interest rate, call several VA approved lenders in your area. Ask them about closing costs as well as rates. You should also inquire as to whether they require an appraisal or not, since hiring an appraiser could add hundreds of dollars to your out-of-pocket expenses.
The application process
Applying for a VA IRRRL loan is a breeze compared to most mortgage lending experiences. You may go through some or all of the steps below, depending on your lender and your situation.
- Income verification: Most lenders won’t require income verification for an IRRRL loan unless your payments are increasing significantly.
- Credit history: Your lender will look over your payment history and might pull a hard copy of your credit report during the process.
- Appraisal: Some lenders don’t require an appraisal, which could save you hundreds of dollars on the cost of the refinance.
- Occupancy requirement: You’ll need to certify that you have occupied this house in the past or live there now.
- Second mortgage agreement: If you’ve taken out a second mortgage on your house, that lender will need to sign a document agreeing to continue as the second mortgage holder.
- Funding fee: The VA streamline refinance loan adds a fee of 0.5% of your loan amount, which is a bargain compared to most home loan fees. You can choose to have the fee rolled into your loan amount if you wish — but then you’ll be paying interest on it.
The final word
VA streamline refinancing is a simple, money-saving option for veterans and their surviving spouses. The application process is much faster and less stressful than most mortgage loans. If you’re already holding a VA home loan, you almost certainly qualify.
If current rates are lower than what you’re paying for your VA mortgage loan, you should talk to your lender about the VA IRRRL program.