What Is a VA Streamline Refinance?
The VA's Streamline Refinance program, or VA Streamline, is a fast and affordable way to refinance your VA loan. Also known as a "VA to VA" loan or Interest Rate Reduction Refinancing Loan (IRRRL), it lets borrowers lower the interest rates on their mortgages with few or no out-of-pocket costs.
The IRRRL offers those who qualify a way to refinance their existing VA home loan with less documentation and much less time compared to other loan programs in the market today.
The IRRRL program is available only to those who have already used the eligibility for a VA loan on the properties they intend to refinance.
This program is probably the best option if you just want to refinance your existing loan at a lower interest rate.
What are the features of the VA streamline, and what are the qualifications for the loan?
Streamline Refinance Advantages
The major advantage when refinancing with a VA streamline is the reduced documentation needed in order to approve the mortgage. It is often easier to meet the requirements for VA streamline refinances compared to other mortgages, which is why IRRRLs are called "simpler" refinances.
Lower interest rates
The primary benefit of VA streamline refinances is that they make it simpler to lower the rate on your VA loan, compared to other kinds of home loans.
Lower monthly payments
Lowering your interest rate can also lower the amount you pay each month on your mortgage bill.
No home appraisals
You won't need to pay for a new appraisal to estimate the current market value of your home. This saves the borrower time as well as money.
No termite report
The VA does not require a termite report as long as the current mortgage has been paid as agreed for the last 12 months and is up to date at the time of refinancing.
No income verification
Verification of income for all borrowers on the VA streamline is not required. That means unlike the original VA loan when pay check stubs, W2 forms and tax returns were provided, the IRRRL requires no income verification whatsoever. This is assuming the existing mortgage has been paid as agreed for the last 12 months and is up to date.
No credit report
There is no minimum credit score required for a VA streamline loan. The lender, however, will verify that there are no payments in the last 12 months that are more than 30 days past the due date. A lender can pull a credit report for this verification but does not consider credit scores.
Easier credit qualification
You can get approved for VA streamline refinancing with lower credit scores compared to other loans.
Low funding fee
The current funding fee for IRRRL refinancing is just 0.5% of the loan amount. If you are a disabled veteran or surviving spouse, you may be exempt from paying this fee.
Add closing costs to your loan amount
The loan can be done with "no out of pocket money" by including all costs in the new loan, or by making the new loan at an interest rate high enough to let you pay the costs.
Faster closings
Because streamline refinancing has less paperwork, you can often close your new loan faster, compared to other kinds of refinancing.
Money for energy-efficient home improvements
You may include up to $6,000 in your refinancing loan for energy-efficient home improvements. But NOTE: Adding all of these items into your loan may result in a situation in which you owe more than the fair market value of the house, and will reduce the benefit of refinancing since your payment will not be lowered as much as it could be. Also, you could have difficulty selling the house for enough to pay off your loan balance.
Related: IRRRL Facts for Veterans
Is a Streamline Refinance Worth the Process?
Your loan officer can spell out all the paperwork and help you decide if a streamline refinance is right for your situation. If your streamline loan rate is not 1%-2% lower than your existing VA loan, it might not be worth changing loans.
Some lenders offer IRRRLs as an opportunity to reduce the term of your loan from 30 years to 15 years. While this can save you a lot of money in interest over the life of the loan, again, if the reduction in the interest rate is not at least 1% (2% is better) and lots of new loan costs are rolled into the new loan, you may see a very large increase in your monthly payment -- an increase bigger than you can afford.
When you are comparing VA IRRRL refinancing offers from different lenders, be sure to look at the annual percentage rates (APR) as well as the interest rates. APR includes interest charges, plus other costs and fees you might have to pay. This makes it easier to understand the full cost of a mortgage. Also keep in mind that, by refinancing, the total finance charges you pay may be higher over the life of the loan.
Streamline Refinance Requirements
Refinancing must make financial sense. Except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM) to a fixed rate, the refinance must result in a lower interest rate. The VA calls this having a "net tangible benefit." For many loans, you can meet this rule if you reduce your interest rate by at least 0.5%. Lowering your monthly payment or switching to a fixed-rate mortgage can also qualify.
You must have a VA loan. To be eligible for streamline refinancing, you need to replace an existing VA loan with a new VA loan.
Be current on your payments. To be eligible, you need to be up to date on your VA mortgage payments.
Have the VA loan for six months. VA rules officially define this eligibility requirement by saying the due date of the first monthly payment of the VA loan you are refinancing must be 210 days or more prior to the closing date of your new loan refinance. This works out to roughly six months for many borrowers. You also need to have made six consecutive monthly payments on the VA loan you are refinancing.
Take no cash out. You can't borrow money from your home equity with VA IRRRLs.
Related: Inside the Interest Rate Reduction Refinance Loan
Streamline Refinance Basics
- No assumptions are allowed.
- No loan other than the existing VA loan may be paid from the proceeds of an IRRRL. If you have a second mortgage, the holder must agree to subordinate that lien (place it in a lower-ranking position) so your new VA loan will be a first mortgage.
- The VA has a funding fee of one-half of 1% of the loan amount, which may be paid in cash or included in the loan.
- Any other liens must be subordinated to the VA loan.
Occupancy Requirement for an IRRRL
The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL, you need only certify that you previously occupied it. This verification is relatively easy to provide, and can be evidenced by providing a copy of the original settlement statement or initial VA loan document.
When a VA loan is originally issued, it's for a primary residence only. VA mortgage loans are not allowed to be used to finance a duplex or any rental property. The VA home loan is hands-down the best no and low down payment program on the market for those who qualify, and the benefit is designed to help veterans buy a home to occupy and not become a real estate investor.
Do I Need My Certificate of Eligibility (COE) for a VA Streamline Refinance?
No, since you needed to provide a certificate of eligibility for your original VA loan, you won't need to provide it again for your refinance. Your lender can use the VA's email confirmation procedure for interest rate reduction refinance in lieu of a CoE. In other words, the new loan "piggybacks" on the existing eligibility.
Can I Use a VA Streamline on an Investment Property?
Yes, although you need to certify that you've previously used the property as your home. The VA streamline refinance is a VA to VA loan, and residency requirements are a little different. However, qualifying is easier if you are the primary resident.
Related: Helpful Tips for an IRRRL
IRRRL Facts About Lenders
Not happy with your current lender? No lender is required to make you an IRRRL, but, any lender of your choice may process your application for an IRRRL. While your current lender might be the best place to start shopping for an IRRRL, you do not have to go to the lender you make your payments to now or to the lender from whom you originally obtained your VA loan.
Homeowners are strongly urged to contact several lenders. There may be big differences in the terms offered by the various lenders you contact.
Some lenders may contact you, suggesting they are the only lender with authority to make IRRRLs. Remember: Any lender may make you an IRRRL.
Some lenders may say the VA requires certain closing costs to be charged and included in the loan. Remember: The only cost required by VA is a funding fee of one-half of 1% of the loan amount, which may be paid in cash or included in the loan.
With that being said, lenders may also impose their own internal lending guidelines. As long as the lender employs the guideline across the board and does not selectively apply the additional rule to a particular borrower, which could be an indication of discrimination, a lender has the right to add other qualifications. These additional qualifications are called "overlays."
Closing Costs for VA IRRRL Streamline Refinances
IRRRL closing costs vary from lender to lender. You may have to pay "discount points" to get a certain interest rate. (One point is equal to 1% of the loan amount.) You may have to pay origination fees, which are also called "lender" fees.
Additionally, there can be government recording fees, a funding fee and other costs. The VA allows you to add many closing costs to your loan balance, including up to two discount points and the VA funding fee.
Your loan disclosure documents will explain what closing costs are required and how much you will need to pay. Make sure you understand these costs and ask your lender when you have questions.
Get Started Today
The VA IRRRL program provides the easiest method to refinance into today's lower rates when compared to any other loan program in the market. As long as the borrower meets the VA and lender requirements for the streamline, a lower interest rate and more stable mortgage program is just around the corner.
Our VA loan finder can match you with up to five rate quotes from different lenders. Check it out now!
