VA Streamline Refinance (IRRRL): 2024 Guidelines and Loan Requirements
Do you have a home loan backed by the Department of Veterans Affairs? You may be able to refinance your mortgage without an appraisal, pay stubs, W2s, or bank statements.
With a VA streamline refinance, you can reduce your interest costs easier than using a standard refinance.
What Is a VA Streamline Refinance?
The VA streamline refinance is called an interest rate reduction refinance loan (IRRRL). Eligible homeowners with a VA loan can apply for an IRRRL to reduce their interest or refinance an adjustable-rate mortgage.
Most borrowers can qualify for an IRRRL without:
Providing paystubs, W2s, or filed tax returns
Undergoing a comprehensive credit check
Paying and waiting for an appraisal
For homeowners, this makes the refinancing process simpler. Plus, eliminating the need for an appraisal can speed up the loan and reduce closing costs.
VA Streamline Refinance Guidelines
You can only qualify for a VA streamline refinance if you currently have a VA-backed mortgage.
With that requirement met, the guidelines for an IRRRL are pretty straightforward. If interest rates have dropped since you took out your loan, there's a good chance you’ll qualify. And if you currently have an adjustable-rate mortgage, you can refinance even if you'll be locked into a higher rate.
Reducing Your Interest Rates
If you’re refinancing your fixed-rate mortgage to another fixed-rate mortgage, you’ll need to lower your interest rate by at least 0.5% to qualify for an IRRRL.
If you’re refinancing from a fixed-rate mortgage to an adjustable-rate mortgage, your new initial rate must be at least 2% lower.
Plus, to refinance from a fixed-rate mortgage to an adjustable-rate mortgage, at least some rate reduction must be from an improvement in market conditions since you took out your original loan.
This means that overall rates must have dropped, and the reduction isn't solely from purchasing discount points from your lender unless:
You pay for the points at closing and do not roll them into your loan
You're rolling up to one point into your loan, and your loan-to-value (LTV) remains at or below 100%
You're rolling up to two points into your loan, and your LTV remains at or below 90%
Regardless of LTV, you can't roll more than two discount points into your loan balance with a VA IRRRL.
Reducing Your Monthly Payments
Qualifying for a VA streamline refinance also requires that your monthly principal and interest payments be lower than you currently pay, except for when you’re:
Refinancing an adjustable-rate mortgage
Refinancing to a shorter term
Including energy-efficient improvements (up to $6,000) in your refinance
Loan Term Limits
VA guidelines allow you to extend the length of your mortgage up to 10 years past your current loan's term – to a maximum of 30 years, 32 days – with an IRRRL.
For example, if you currently have a 15-year loan, you could refinance to a 25-year term but not a 30-year. However, if you currently have a 25-year loan, you could only refinance for up to 30 years.
How Soon Can I Refinance My VA Loan?
You must meet loan seasoning requirements to qualify for an IRRRL.
VA lenders consider your loan adequately seasoned once 210 days have passed since your first mortgage payment. You also need to have made a minimum of six consecutive payments.
In practice, most borrowers with on-time payments are eligible to refinance between eight and nine months after taking out their mortgage.
There's no limit to how many times you can qualify for an IRRRL. If you've used a VA streamline refinance in the past, but your loan is properly seasoned, and you meet the other guidelines, you can qualify again.
However, if you refinance your home multiple times, be sure to be conscious of how extending the term of your loan or rolling closing costs into your balance can impact your long-term finances.
VA IRRRL Funding Fee
For most borrowers, a VA streamline refinance comes with a funding fee of 0.5%. This is much lower than the VA funding fee for purchase loans, which ranges from 1.25% to 3.3%. Similarly, VA cash-out refinances vary between 2.15% and 3.3%
The 0.5% VA IRRRL funding fee is part of your closing costs. You can pay the total at closing or roll it into your loan balance.
However, some borrowers may be eligible to have the IRRRL funding fee waived:
Service members receiving compensation for a service-related disability
Service members eligible for disability compensation but who are still active-duty or receiving retirement pay instead
Active-duty service members who are recipients of the Purple Heart
Surviving spouses of a service member who are receiving Dependency and Indemnity Compensation (DIC)
What Are the Closing Costs on a VA Streamline Refinance?
Most borrowers' closing costs on a VA streamline refinance run between 2% and 4%.
VA IRRRLs have a funding fee of 0.5%, meaning one-half of one percent of the loan amount will be added to the loan. This fee partially funds the VA home loan program. Though this is an extra ctost, the appraisal waiver helps offset it.
VA guidelines require that borrowers be able to recoup their closing costs through monthly savings within 36 months with an interest rate reduction refinance loan.
To calculate your recoupment period, take your applicable closing costs and divide them by your monthly savings.
For Example: You currently have a 30-year mortgage for $200,000 at a rate of 7.5%. Your principal and interest payments are just under $1,400 per month. You qualify for a 30-year VA streamline refinance for your remaining loan balance of $190,000 at a rate of 6.5%. Your new principal and interest payments are $1,200 per month, a savings of $200.
Assuming closing costs of 3%, you would pay $5,700 to refinance. Divided by your $200 monthly savings, this would result in a recoupment period of 29 months.
There are, however, some expenses paid at closing which you can exclude from the recoupment calculation:
VA funding fee
Per diem interest
Also, if you've added the cost of energy-efficient improvements to your mortgage, you can deduct that amount from your loan total when calculating recoupment.
In some situations, such as refinancing to a shorter term, your monthly payments may be higher than your previous loan. In this scenario, the only way to meet recoupment requirements is through a "no cost refinance," where the lender covers all applicable closing costs in exchange for a higher-than-market interest rate (but still lower than your current rate).
When Is Credit and Income Qualification or an Appraisal Needed?
Even though it’s a streamline refinance, there are some scenarios where VA guidelines require borrowers to go through credit and income qualification or get an appraisal.
You’ll need to go through the credit and income-qualifying process if you’re:
Increasing your monthly payments by 20% or more
Refinancing a loan that is 30 days or more past due
Similarly, you may need an appraisal if you're financing more than one discount point into your loan. VA IRRRL guidelines require lenders to verify that your LTV is no higher than 90% in this situation.
Second Mortgages and Other Liens on Your Property
The streamline refinance process is more complicated if you've taken out a second mortgage like a home equity loan or line of credit or have any other type of property lien.
With a VA IRRRL, you can only refinance your current VA-backed mortgage. If you have any other mortgages or liens against your property, you'll need to pay them off or get the lienholder to agree to resubordination. This means they must consent to move back into a position secondary to your new mortgage.
If you have other liens on your property, consider a VA cash-out refinance. This would allow you to pay off debts by borrowing up to 100% of your property's value.
VA Streamline Refinance for Non-Owner Occupied Properties
If you have a VA loan on a property you no longer live in, you can still qualify for a VA streamline refinance. Rates may be higher on properties that aren't your primary residence. However, you're eligible for an IRRRL as long as you certify and provide documentation that you previously occupied the home.
Can You Qualify for an IRRRL if Your Mortgage Is Past Due?
Most lenders only allow you to refinance a mortgage if you're current on your payments. But the VA IRRRL program enables you to refinance a VA loan, even if it's 30 days or more past due.
Eligible borrowers can roll their past-due payments, late charges, and any legal fees they may have incurred into their new balance.
Remember: if you're applying for a VA streamline refinance with a past-due mortgage, you'll need to go through the income verification process.
Does an IRRRL Impact VA Entitlement?
Getting an IRRRL does not impact your VA entitlement. In most cases, you won't even need to provide your lender with a Certificate of Eligibility. Your entitlement usage remains the same from when you purchased your home, even if your loan balance increases because of added-in closing costs.
Cashing Out Equity With a VA Streamline Refinance
The VA IRRRL doesn't allow you to cash out your home's equity. However, there is one exception: you can reimburse yourself up to $6,000 for energy-efficient improvements installed within 90 days before closing.
If you want to withdraw more funds or use them for any other purpose, consider applying for a VA cash-out refinance. Although you must qualify for the loan and have an appraisal completed, you can cash out as much as 100% of your home's value. Your current mortgage doesn’t even need to be a VA loan to be eligible.
Will a VA Streamline Refinance Save You Money?
If you have a VA loan you took out within the past couple of years, you may be eligible to reduce your interest rate with a VA streamline refinance. Even a slight rate reduction can equate to noticeable monthly savings for many borrowers.
To find out how much you could save with an interest rate reduction refinance loan, check today's rates and apply with a VA-approved lender who can review your mortgage options.
Tim Lucas spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. Tim has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, My Mortgage Insider, and more.