VA Streamline Refinance (IRRRL): How it Works

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Currently have a VA home loan you’re eager to refinance? If you qualify as an active duty military member, veteran, or surviving spouse, you can get on the refi fast track and save money by opting for a VA streamline refinance, also called an IRRRL.

This allows you to lower your interest rate and refinance without as much paperwork or an appraisal and benefit from other perks, too. 

Find out what’s required to qualify for a VA IRRRL, good candidates for this option, the steps involved, viable alternatives, and more with the help of this handy article.

VA streamline refinance explained

If you want to refinance a VA loan, you have two choices: a VA cash-out refi or a VA streamline refinance, also referred to as a VA Interest Rate Reduction Refinance Loan (IRRRL). 

The latter is a good choice if you want to save money by refinancing to a lower interest rate, switch from a more costly adjustable-rate mortgage (ARM) to a new fixed-rate, hybrid ARM, or traditional ARM VA home loan, and/or alter the repayment terms on an existing VA mortgage. An IRRRL allows you to accomplish these goals without a new appraisal needed.

Plus, credit underwriting is made easier, with no minimum credit score, proof of employment, or full documentation typically required. And you can even roll closing costs into the loan so that you don’t have to pay anything at closing.

You are guaranteed to pay less overall with an IRRRL. That’s because the VA will only allow a streamline refinance to proceed if the new terms guarantee an immediate financial benefit like a lower monthly payment or decreased interest rate (unless you are transitioning from a VA ARM).

You won’t get the green light on a streamline refi if you simply desire a different lender.

An IRRRL works just like other types of mortgage loan refinance: It permits you to replace your current mortgage loan with a new VA mortgage backed by the Department of Veterans Affairs.

You’ll start fresh with a brand new loan that can be longer or shorter than your current term (the maximum loan length on an IRRRL is 30 years) and with an all-new fixed rate that will be lower than your existing rate.

As with a VA cash-out refi, you’ll have to pay a funding fee equivalent to 0.5% of your loan amount, unless you qualify for disability services.

Note that an IRRRL is not a cash-out refinance; it cannot be used to take equity out of your home or pay off other debts.

Worthy prospects for a VA streamline refinance

Good candidates for pursuing an IRRRL include eligible borrowers who seek to decrease their monthly payments, as the refi will lower your interest rate and monthly payments. Those with an ARM should also consider a VA streamline refinance, as it can enable you to lock in a fixed rate you can count on—hopefully a rate lower than you are currently paying. 

Let’s imagine you currently have a VA fixed-rate mortgage loan for which you still owe $250,000 at 6.0%, equating to a monthly principal and interest payment of about $1,499. If you do a VA streamline refi at 5.0%, you can reduce your principal and interest payment to $1,342, thereby saving nearly $157 a month.

“If you are thinking about renting out your residence, you might also want to get an IRRRL, as you are allowed to vacate the home and lease the property before or after this refinance,” Jason Gelios a Realtor in southeast Michigan who specializes in loans for veterans, says.

How to qualify

To be eligible for an IRRL, you must be either a veteran, active duty service member, Reserve or National Guard member (called to active duty or who has completed six years of creditable service), or surviving spouse. You must have been discharged as a veteran or service member under conditions other than dishonorable, and you must meet length of service requirements.

Additionally, you must have an existing VA home loan in place. You must certify that you at least previously occupied the home (single-family residences, condominiums, and manufactured homes are all eligible for an IRRRL).

The refinanced loan cannot exceed the borrowed amount on the existing VA loan (plus any financed funding fee).

Fortunately, there are no income limits for an IRRRL, no credit review is performed, no appraisal is needed, and you aren’t obligated to make a down payment, pay for mortgage insurance, or attend homeownership counseling.

Also, a new Certificate of Eligibility (COE) is not required. Borrowers do not have to show their COE to confirm prior use of entitlement.

What’s involved with the process

To get a VA streamline refinance loan, several steps are involved. Here’s what you’ll likely have to do:

  • Wait at least six months from the date your current mortgage payments began.
  • Shop around for different lenders who offer an IRRRL and compare loan offers and rates carefully. Many mortgage lenders, private banks, and credit unions offer IRRRL loans.
  • Apply for the new loan.
  • Provide anything the lender requests, although full documentation is typically not required with an IRRRL.
  • Await an underwriting decision.
  • If approved, close on the loan and pay closing costs, which typically range from 2% to 5% or more of your loan amount.

 “The streamlined refi process can take anywhere from 30 to 45 days from application through closing,” Gelios continues.

Ponder these alternatives

A VA streamline refinance isn’t for everyone, nor is it a sure thing that you’ll be approved. Problem is, mortgage interest rates right now are likely higher than what’s being charged on your existing VA loan.

If so, you may not qualify for an IRRRL currently because this move is not guaranteed to lower your mortgage payments. So you might have to wait until rates drop for a streamline refi to be approved and worthwhile.

“I would avoid an IRRRL if the rate reduction is only minor. The closing costs and funding fee involved could exceed any interest reduction benefits,” cautions real estate expert Alex Capozzolo, co-founder of SD House Guys.

Alternatively, you could pursue a conventional refinance, in which you replace your existing VA home loan with a conventional mortgage loan backed by Fannie Mae or Freddie Mac. If so, you can avoid having to fork over the 0.5% funding fee, but you’ll likely pay a higher interest rate than if you had chosen an IRRRL.

Or, especially if you want to liquidate some of your property’s equity for the purpose of home improvements, paying off high-interest credit card debt, or another reason, consider a VA cash-out refi. Just be prepared to pay a costlier funding fee (2.15% to 3.3%) and a higher interest rate than an IRRRL would charge.

The bottom line

Assuming you can lower your interest rate and qualify for a VA streamline refinance loan, this can be a great way to pay less and make your monthly budget more manageable. Also, if you have a VA adjustable-rate mortgage and the rate has jumped significantly, switching to a fixed-rate IRRRL may help you sleep better at night.

“Be sure to always consider every available option before committing to any loan, including a VA streamline refinance,” suggests Gelios. “Speak with a trusted lending professional who specializes in VA loans for best results.”

Kara Johnson

Kara is a Rye, New York-based author and contributing writer for Refi.com. She is a graduate of Hampshire College.