What Is a VA Streamline Refinance (VA IRRRL)?

The VA Interest Rate Reduction Refinance Loan (IRRRL) is a refinancing option for veterans with existing VA-backed home loans.

Finding your way around home loans can be complex, especially if you’re a veteran seeking to optimize your mortgage situation. Here’s where the VA Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA streamline refinance, comes in handy. Discover how this program, a powerful tool designed to help veterans reduce their interest rates and monthly payments with minimal hassle, can transform your mortgage experience and provide significant financial benefits.

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What Is a VA IRRRL?

A VA Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA streamline refinance, is a refinancing option offered by the U.S. Department of Veterans Affairs for veterans with an existing VA-backed home loan. This program allows borrowers to refinance their VA mortgage into a new one with a lower interest rate or switch from an adjustable-rate mortgage (ARM) to a fixed-rate option, often with fewer and less stringent requirements than other refinance programs. 

How Does a VA Streamline Refinance Work?

The VA Streamline Refinance or VA Interest Rate Reduction Refinance Loan (IRRRL), offers veterans a simplified process to lower their interest rates and monthly mortgage payments on existing VA loans. First, you must have an existing VA-backed home loan and certify that you either live in the home or have lived there previously. You’ll then apply through a VA-approved lender. The process doesn't require credit, income or employment verification, which significantly streamlines the procedure. 

In most cases, a new home appraisal isn't needed, further simplifying the process. Closing costs can often be rolled into the new loan to reduce upfront expenses. You can opt for a new loan term of either 30 years or 15 years which starts fresh from the date of refinancing. This efficient process typically closes faster than other refinance options due to the reduced documentation requirements and lack of an appraisal.

Let’s say you currently have a 30-year VA loan with a balance of $300,000 at an 8.5% interest rate. Your monthly principal and interest payment is approximately $2,307 and the total estimated interest paid over 30 years would be $830,427.

Now, if you refinance to a new 30-year VA loan with a 6.0% interest rate through the VA IRRRL program, your new estimated monthly payment would be around $1,798.65 and the total estimated interest paid over 30 years would drop to $347,514. This results in interest savings of $482,913 over the life of the loan.

When Does It Make Sense to Get a VA IRRRL?

A VA Interest Rate Reduction Refinance Loan (IRRRL) can be particularly helpful in several scenarios:

• Scenario 1: Lower Monthly Payments

If you’re looking to reduce your monthly mortgage payments, a VA IRRRL can help. By refinancing to a lower interest rate, you can save money each month, which adds up over the life of your loan.

• Scenario 2: Adjustable-Rate Mortgage to Fixed-Rate

For those with an adjustable-rate mortgage (ARM), the risk of interest rates increasing is always present, leading to higher monthly payments. A VA IRRRL allows you to switch to a fixed-rate mortgage, providing stability and predictability in your payments.

• Scenario 3: Planning to Rent Out Your Home

If you’re considering renting out your home, a VA IRRRL can be a smart move. It can lower your interest rate and monthly payment, making it easier to manage as a rental property while potentially increasing your cash flow.

Pros and Cons of VA Streamline Refinance

Weigh the advantages and drawbacks of VA Streamline refinance to determine if this refinancing option aligns with your financial goals.

Pros

• Lower interest rates: The primary advantage of a VA IRRRL is the potential to secure a lower interest rate, which can significantly reduce your monthly mortgage payments and save you money over the life of the loan.
• No appraisal or credit underwriting: This does not require a home appraisal or credit underwriting, making the process faster, less invasive, and often possible even if your financial situation has changed.
• No out-of-pocket costs: You can roll the closing costs and the VA funding fee into the new loan amount, avoiding needing upfront cash.

Cons

• No cash-out option: This may not be the right refinancing option if you want to access cash for home improvements or other expenses. The VA IRRRL does not allow you to take cash from your home equity. 
• Limited eligibility: Only those with existing VA-backed loans are eligible for a VA IRRRL. If you have a different loan type, you won’t be able to take advantage of this program.
• Extended loan terms: While you can lower your monthly payments, streamlining refinancing could extend the overall term of your loan, potentially leading to more interest paid over time if you opt for a longer term.

How Much Does a VA IRRRL Cost?

The cost of a VA Interest Rate Reduction Refinance Loan (IRRRL) primarily consists of the VA funding fee and various closing costs. 

VA funding fee for an IRRRL is typically 0.5% of the loan amount. This fee helps lower the loan cost for U.S. taxpayers, as the VA home loan program doesn’t require down payments or monthly mortgage insurance. Veterans receiving VA compensation for a service-connected disability, among others, are exempt from the funding fee.

Closing costs for a VA IRRRL include an origination fee, discount points, prepaid taxes and insurance, title examination and insurance fees, recording fees and special mailing fees. These costs vary by lender and together (VA funding fees inclusive) normally range between 2% and 4% of the loan amount. Borrowers can roll these costs into the new loan amount instead of paying them upfront.

How to Qualify for VA IRRRL Refinance

To qualify for a VA Interest Rate Reduction Refinance Loan (IRRRL), you’ll need to tick the following boxes:

• You must currently have a VA-backed home loan 
• You must certify that you live in or have previously lived in the home tied to the loan.
• The refinance should result in a lower interest rate and monthly payment, except you’re switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan. 
• You should have no more than one 30-day late payment in the past 12 months. 
• If you have a second mortgage, the lender must agree to make your new VA-backed loan the first mortgage

How to Apply for a VA Streamline Refinance

Applying for a VA Streamline Refinance is less cumbersome than a typical refinance but still requires careful preparation.

Check if You Qualify

To check if you qualify for a VA IRRRL, you must confirm your existing VA-backed mortgage. Ensure the refinance will result in a financial benefit, such as a lower interest rate or monthly payment. Also, certify that you currently live in or have previously lived in the home associated with the loan.

Prepare Your Documents

Documents you’ll need for a VA IRRRL include:

• Your current mortgage statement
• Government-issued identification
• Certificate of Eligibility (CoE) to prove your entitlement to VA loan benefits
• Proof of current income, such as recent pay stubs

Find a VA-Approved Lender

A VA-approved lender can be a mortgage company, bank, or credit union. Request quotes from these lenders to compare rates and terms. After selecting a lender, complete their application process, which usually requires less paperwork than a standard refinance. Once your application is approved, finalize the loan by signing the necessary documents.

Find the Best VA Lenders Benzinga’s Top Providers

The best VA lenders, according to Benzinga, offer a range of options tailored to the needs of veterans and service members. Here’s a quick overview:

Unlock Better Terms with a VA IRRRL

The VA Streamline Refinance (VA IRRRL) offers a unique opportunity for veterans to lower their interest rates and monthly payments with a streamlined process. By understanding the benefits, costs and qualifications, veterans can make calculated decisions to optimize their mortgage and achieve financial stability.

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