VA IRRRL: A Quick Guide To What It Is And How It Work

A mortgage from the Veterans Affairs (known as a VA loan) can be an affordable way to get into a home. However, the way personal situations and the economy can change, you may still have trouble making ends meet. Fortunately, a VA Interest Rate Reduction Refinance Loan (VA IRRRL) allows VA borrowers to restructure their mortgage to obtain a better interest rate or monthly payment. This refinance is exclusive to VA loan holders, providing a quick, inexpensive way to solve mortgage woes.

What Is A VA IRRRL?

A VA IRRRL is a mortgage refinance option for eligible veterans, active-duty service members and surviving spouses with a current VA home loan. VA IRRRLs allow borrowers to reduce their interest rate and decrease their monthly mortgage payments. Also called a Streamline refinance, this VA loan refinance has a faster implementation period than other loans, allowing you to start saving money on your house payment quickly.

The government created the VA IRRRL (pronounced “earl”) in 1980 to help veterans obtain more affordable mortgage payments. Specifically, this refinance tool can convert adjustable-rate mortgages to fixed-rate mortgages, change loan terms and lower interest rates. 

Remember, qualifying veterans, current military members, and their surviving spouses are eligible for a VA IRRRL if the new terms provide a prompt, clear financial benefit. For example, a popular goal is receiving a lower interest rate or monthly payment. On the other hand, VA IRRRLs aren’t for situations when you want to change lenders or tap your equity.

Understanding How The VA IRRRL Program Works

The IRRRL program makes the refinancing process faster than other refinance types because it typically requires less documentation and paperwork. For instance, the VA doesn’t require an appraisal, credit check or employment verification for a Streamline refinance (although your lender might require them). Instead, the primary qualification borrowers must show is that they’re current on their mortgage payments. In addition, a title search and title insurance are necessary. The borrower can also roll any incurred closing costs into the new loan amount, minimizing upfront expenses.

An IRRRL is only valid for refinancing a property with an existing VA loan. Valid properties for this refinance include single-family houses, condominiums and manufactured homes. The refinance can also be with a new lender if the borrower chooses, but changing lenders cannot be the sole reason for the refinance.

The VA requires that the rate on the new loan is reduced to create a “net tangible benefit” to the borrower as a result of the refinance. However, this benefit isn’t related to the borrower’s financial status, meaning proving a financial hardship isn’t necessary. In addition, the refinance can’t payoff additional liens. Instead, the benefit comes from changing the loan terms and providing an immediate financial advantage.

VA IRRRL Requirements And Eligibility

To get a VA Streamline, you must have an existing VA home loan, make at least 6 consecutive monthly payments, and be at least 270 days after closing on your original loan. VA members with conventional loans can’t refinance with an IRRRL. Additionally, you must be an eligible active-duty service member, reservist, veteran or surviving spouse (the spouse of someone who passed while in service or as a result of a service-connected disability) with a VA loan.

Furthermore, the IRRRL only applies to the VA loan amount. Laws prohibit the refinance from paying other liens on the property, such as a separate home equity loan, mechanic’s lien or HOA fees. While IRRRLs are typically for your primary residence, a rental home you previously lived in may be eligible.

Remember, proof of residence is mandatory for obtaining an IRRRL. As a result, your lender will request bank statements, utility bills or pay stubs with your name and address.

Lastly, as mentioned above, the lender must affirm the borrower reaps an indisputable financial gain from the refinance.

VA IRRRL Rates

While VA refinance loans usually have some of the lowest interest rates on the market, rates vary from client to client. Each borrower’s refinance rate depends on loan size, credit score and term length.

Mortgage rates may change daily. Here are the current mortgage interest rates for VA loans, as of October 2, 2023:

VA IRRRL Program Pros And Cons

Now that you understand the details of a VA Streamline refinance, here’s why you might pursue or avoid this type of loan.

VA IRRRL Pros

 

VA IRRRL Cons

When To Consider A VA Streamline Refinance

Here are some scenarios where a VA Streamline refinance may be worth it and who would benefit the most:

How To Get A VA IRRRL

Here’s a step-by-step guide for getting a VA Streamline refinance for your home.

1. Choose A Lender

Shopping around for a loan is the best way to get favorable rates and terms. It’s advisable to communicate with multiple lenders about their VA IRRRL packages. Then, you can review the information and compare lenders to see which one suits you. For example, one lender might impose a credit score threshold you don’t meet, while another allows all credit scores but charges more interest.

2. Submit Your Application

Once you pick a lender, you’ll submit your application. Doing so means providing a Certificate of Eligibility (COE). In addition, you’ll demonstrate your ability to pay the VA funding fee, give proof of exemption, or opt to roll it into your loan.

3. Close On The Loan

To close, you’ll meet with your lender on closing day to finalize and receive the VA IRRRL. You’ll pay the closing costs and the VA funding fee (if applicable). Closing on a VA Streamline Loan is less expensive and time-consuming than a typical closing.

VA IRRRL Program FAQs

VA IRRRLs involve many moving parts. Knowing the answers to the frequently asked questions about the topic can help provide a better understanding.

What is a VA Streamline refinance?

A VA Streamline refinance allows borrowers with a VA home loan to lower their rate and may include additional benefits a change in their loan term. The refinance requires less paperwork and fewer fees than a full refinance and can also change an ARM to a fixed-rate loan.

How much does a VA IRRRL cost?

A VA IRRL involves a funding fee of 0.5% of the loan amount. In addition, your lender can charge closing costs of up to 1% of the loan amount.  

How long does the VA IRRRL process take?

VA IRRRLs have three primary time requirements. First, there have to be at least 270 days between the application date for your refinance and the closing date of your previous loan. Second, you have to have made at least 6 consecutive months of payments on your previous loan to refinance (advance payments don’t count). Thirdly, there must be 210 days between the first payment on your prior loan and the closing date on your VA Streamline.

What are the alternatives to a VA IRRRL?

VA members who want to refinance their loan can also use a VA cash-out refinance. This option allows you to tap your equity, doesn’t require the original mortgage to be a VA loan, and may have higher closing costs. In addition, you can refinance to a conventional loan, which can have stricter financial requirements and higher interest rates.

Can I get a VA IRRRL with bad credit?

There is no minimum credit score for a VA loan, and credit score requirements vary by lender. As a result, a subpar credit score doesn’t immediately disqualify you from getting a VA IRRRL. For example, some lenders require a score of 580 to get a Streamline refinance.

The Bottom Line

A VA IRRRL makes your VA loan more affordable through longer terms and lower interest rates. In addition, they require less time and money than other refinance types. However, the closing costs, funding fee, and longer loan term can increase the total loan costs. Plus, they don’t allow you to cash out any of your equity, and they’re only allowed in situations with demonstrated benefit to the borrower. As a result, it’s recommended to consider your options and shop around when refinancing.