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VA Streamline Refinance (IRRRL) Program
The VA Streamline Refinance Program, also known as an interest rate reduction refinance loan (IRRRL) or VA to VA refinance, enables borrowers to refinance an existing VA loan with fewer borrower qualification requirements and less documentation as compared to a standard refinance. The program is designed to make it easier for VA borrowers to refinance into a more affordable mortgage with a lower monthly payment.
The primary benefits of a VA streamline refinance as compared to a regular mortgage refinance are that a VA Streamline Refinance does not require borrowers to verify their employment, income or credit score. Additionally, the program does not apply a maximum borrower debt-to-income ratio under most circumstances or require an appraisal report. The simplified VA Streamline Refinance requirements enable more borrowers to refinance their loan while saving money and time.
You may ask how is it possible to refinance your mortgage with limited verification, no credit report or appraisal and the answer is that you are required to be current on your mortgage and minimal late payments over the past twelve months. This is a key VA Streamline Refinance requirement as lenders reason that if you have been paying your mortgage on time in the past you will continue to make your payments in the future, especially if you lower your monthly payment with an IRRRL refinance.
You apply for the VA Streamline Refinance Program through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet program eligibility guidelines and qualify for the loan according to VA qualification requirements. Even if your current lender offers VA Loans you are not obligated to work with that lender and you should compare multiple loan proposals to find the best loan terms.
We recommend that you contact multiple VA lenders listed in the table below to understand if they offer VA Streamline Refinances and to compare mortgage terms. Shopping multiple lenders and comparing loan proposals is the best way to save money on your VA refinance.
We review the key VA Streamline Refinance eligibility guidelines below:
Loan Status
Borrowers must be current on their loan and can have no more than one late mortgage payment within the year prior to applying for a VA Streamline Refinance. Borrowers may also be able to use the program even if they are delinquent on their mortgage as long as they provide a letter explaining the delinquency and resolve the delinquency when their refinance closes. The VA must approve all mortgages for delinquent borrowers.
Loan Eligibility
The mortgage you refinance must be a VA loan. If you do not have a VA mortgage you can still refinance your existing loan with a new VA loan, assuming you are eligible, but you cannot use the VA Streamline Refinance Program.
VA Certificate of Eligibility
Borrowers are not required to provide a new certificate of VA eligibility to lenders. With a VA Streamline Refinance borrowers use the same certificate of eligibility that they used for their original loan. The lender may use the VA's email confirmation procedure for a streamline refinance instead of a certificate of eligibility.
Property Occupancy
For a VA Streamline Refinance you do not need to currently occupy the property, you only need to certify that you previously occupied the property. This is more flexible than the occupancy requirement for other VA loans.
Mortgage Rate
A VA Streamline Refinance must result in a lower mortgage rate unless you are refinancing an adjustable rate mortgage (ARM) into a fixed rate mortgage. This is why the program is also called the interest rate reduction refinance loan or IRRRL program.
If you are refinancing a fixed rate mortgage into a new fixed rate loan, your new mortgage rate must be at least 0.50% lower than your current rate. For example, if your current rate is 4.500%, your new rate must be 4.000% or lower. If you are refinancing a fixed rate loan into an adjustable rate mortgage, your new rate must be at least 2.0% lower. For example, if your current rate is 5.500%, your new rate must be 3.500% or lower. If you are refinancing an ARM into a fixed rate mortgage, your mortgage rate may increase as a trade-off for the greater certainty a fixed rate mortgage provides borrowers.
The good news is that mortgage rates on VA loans are usually 0.250% - 0.500% lower than the interest rate for most conventional mortgage programs because the loan is insured by the U.S. government and military personnel tend to be more credit-worthy borrowers.
Mortgage Payment
According to program guidelines, your new VA loan payment must be less than your original payment unless: 1) you are refinancing an adjustable rate mortgage into a fixed rate mortgage, 2) you reduce your mortgage term or 3) you include the cost of energy efficiency home improvements in your new mortgage amount.
Additionally, in most cases you should be able to recoup your closing costs -- excluding the VA funding fee and any prepaid costs including property tax, homeowners insurance and HOA dues -- within 36 months of closing your refinance. If your new monthly mortgage payment is higher than your old payment, the lender is required to document that you did not pay closing costs including lender, appraiser, title company and settlement agent fees.
Loan-to-Value (LTV) Ratio
Although a VA Streamline Refinance does not technically apply a maximum loan-to-value (LTV) ratio, most lenders use an LTV ratio limit of 100%. LTV ratio represents the ratio of the loan amount to your property value so an LTV ratio of 100% means you can borrow up to 100% of your property value. To determine the LTV ratio lenders either use the property value from your existing VA loan or order a new appraisal, even though appraisals are not required according to program guidelines.
Mortgage Program
15, 20, 25 and 30 year fixed rate mortgages and 5/1 adjustable rate mortgages are eligible for the program. Interest only mortgages are not allowed.
Mortgage Amount
Your new VA loan amount may not exceed the sum of the outstanding balance on your existing loan plus allowable fees and closing costs, including the VA funding fee and up to two discount points. You may also add up to $6,000 in energy efficiency improvements to the mortgage amount. Some lenders offer "no cost" refinances by including all closing costs in the new loan. Please note that if you select a no cost loan you usually pay a higher interest rate, which increases your monthly payment and may end up costing you more money in interest expense over the life of the loan. Borrowers can also pay for closing costs out of pocket to obtain a lower mortgage rate as compared to a no cost refinance.
Loan Limits
As of January 1, 2020, VA Home Loan guidelines, including the Streamline Refinance Program, do not apply loan limits to applicants with their full VA entitlement. You restore your entitlement when you refinance your original VA mortgage so loan limits are not applicable to IRRRL applicants.
Type of Refinance
The VA Streamline Refinance Program only permits rate and term refinances which means that the only terms of your mortgage that can change are your program, interest rate and mortgage length. In most cases borrowers lower their interest rate but keep their loan length and balance (plus the VA funding fee and closing costs) the same with their new mortgage. Cash-out refinances are not allowed through the program although borrowers can use $6,000 in mortgage proceeds for energy efficiency home improvements if they combine a VA Streamline Refinance with the VA Energy Efficient Mortgage (EEM) Program.
No loan other than your existing mortgage may be paid from the proceeds of a VA Streamline Refinance. If you have a second mortgage, that lender must agree to subordinate that loan so that your new loan will be a first mortgage which means it is the first priority lien against the property.
VA Funding Fee
VA IRRRL applicants are required to pay a one-time, upfront VA funding fee. The funding fee for a VA Streamline Refinance is 0.5% of the loan amount, which is significantly lower than the funding fee for a standard VA mortgage. The funding fee can be added to the loan amount or paid out of pocket. For example, for a $200,000 loan amount, the upfront funding fee is $1,000 ($200,000 * 0.005 = $1,000).
VA borrowers that receive compensation for a service-related disability or who are entitled to receive compensation for a service-related disability but who receive active duty or retirement pay are not required to pay the VA funding fee. Spouses of veterans who died in service or from a service-related disability are also not required to pay the funding fee.
Prepayment Penalty
There is no prepayment penalty on VA loans.
Use our personalized mortgage quote feature to compare loan terms for leading VA lenders near you. Our quote form is free, easy-to-use and requires minimal personal information. Comparing multiple mortgage proposals enables you to find the best VA refinance loan terms.
As summarized below, VA Streamline Refinance mortgages have reduced qualification requirements as compared to a regular refinance programs. The more lenient loan requirements enable more borrowers to refinance their VA loans.
Borrower Credit Score
Applicants are not required to submit a credit report or score making the program ideal for borrowers who have experienced a decline in their credit score. Borrowers with lower credit scores may find it challenging to qualify for a mortgage or pay a higher mortgage rate but this does not apply to VA Streamline Refinances. Please note that although the program does not require borrowers to provide their credit score some lenders may order your credit report to fulfill their internal underwriting rules.
Borrower Debt-to-Income Ratio
The VA streamline refinance program does not apply a maximum borrower debt-to-income ratio unless your new monthly mortgage payment increases more than 20% as compared to your existing payment. Not applying a debt-to-income ratio make it easier for borrowers who have experienced a decrease in their income or an increase in their debt qualify for the program. If your new monthly mortgage payment increases more than 20% as compared to your old payment, lenders use the VA borrower residual income analysis and apply a 41% debt-to-income ratio to determine your ability to qualify for the mortgage.
Borrower Income Limit
Unlike some other mortgage assistance programs, the VA Streamline Refinance Program does not apply borrower income limits.
Use the FREEandCLEAR Lender Directory to find lenders that offer VA Streamline Refinance loans and other refinance assistance programs.
Sources
"Interest rate reduction refinance loan." VA. U.S. Department of Veterans Affairs, 2020. Web.
"Clarification and Updates to Policy Guidance for VA Interest Rate Reduction Refinance Loans (IRRRLs)." Circular 26-19-22. U.S. Department of Veterans Affairs, August 8 2019. Web.
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