VA Streamline Refinance (IRRRL) Pros and Cons
Key benefits of the VA streamline refinance program include no credit score or appraisal requirement as well as no monthly mortgage insurance fees and a lower mortgage rate. In fact, the VA streamline refinance program is also called an interest rate reduction refinance loan (IRRRL) because the interest rate on your new loan must be less than the interest rate on your existing loan under most circumstances. VA streamline refinance program considerations include loan restrictions and the added expense of the upfront VA funding fee.
We review the full list of the pros and cons for a VA streamline refinance below. Borrowers should evaluate both the positives and negatives of the VA streamline refinance to determine if it is the right mortgage refinance option for them.
VA Streamline Refinance (IRRRL) Pros
Reduced Borrower Qualification Requirements -- No Credit Report or New Certificate of Eligibility Required
The VA streamline program does not require borrowers to verify their credit score or provide a new certificate of eligibility to qualify for the program. This significantly streamlines the refinance application process as borrowers are required to provide less information to qualify for a VA streamline refinance. For example, instead obtaining a new certificate of eligibility borrowers can use their existing certificate that shows prior usage of your entitlement. The VA streamline refinance program is called "streamline" because of the significant documentation, cost and hassle it eliminates from the mortgage refinance process. Please note that although the VA streamline refinance program does not require credit score verification, some lenders may request this documentation to demonstrate that borrowers can afford their mortgage and monthly payment.
No Appraisal Report Requirement
VA streamline refinance applicants are not required to obtain a property appraisal report. Eliminating the appraisal report along with other fees saves borrowers hundreds of dollars in closing costs and streamlines the mortgage closing timetable. For a standard refinance, obtaining an appraisal report adds several weeks and extra costs to the mortgage process. A VA streamline refinance usually takes less than a month to close as compared to more than a month or potentially longer for a typical home loan refinance. Please note that although an appraisal report is not required according to VA streamline refinance guidelines, some lenders require an appraisal to meet their internal underwriting rules.
Low Mortgage Rate
VA mortgage rates are typically 0.250% - 0.500% lower than the interest rate on a regular mortgage and are among the lowest of all mortgages. The interest rate for a VA loan is lower for several reasons. First, the federal government guarantees 25% of the loan amount, which protects lenders against losses in the event that borrowers default on their mortgage. Second, military personnel tend to be more financially responsible and credit-worthy which also enables lenders to offer lower rates on VA mortgages. The lower interest rate on a VA mortgage reduces your monthly payment and possibly saves you thousands of dollars in interest expense over the life of your mortgage. The lower rate is particularly beneficial to borrowers with lower credit scores, who usually pay a higher interest rate on their mortgage. Because the VA streamline refinance program does not require a credit report, borrowers who may have a low credit score still benefit from the lower VA mortgage rate.
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No Borrower Income Limit
The VA streamline refinance program does not limit how much money borrowers can earn. Several other mortgage refinance assistance programs use a maximum income limit to determine borrower eligibility. By not using a borrower income limit, the VA streamline program enables more borrowers to refinance their mortgage.
No Loan Limits
The VA IRRRL program does not use loan limits for applicants with their full VA entitlement available. When you refinance your existing VA mortgage you restore your entitlement which means mortgage limits do not apply to program participants. As long as you meet the other program qualification requirements, you can refinance any size loan.
Flexible Payment History Requirement
The mortgage payment history required by the VA streamline refinance program is more flexible than other streamline refinance programs such as the FHA and USDA streamline programs. Although program guidelines require that borrowers are current on their mortgage with no more than one late payment within a year of applying for the loan, borrowers may be able to use the VA streamline program to refinance even if they are delinquent on their loan. Delinquent borrowers must provide a letter explaining the delinquency and resolve the delinquency when they refinance. Additionally, the VA must approve all mortgages for delinquent borrowers. If borrowers can meet this criteria, the VA streamline program may be a better refinance option for home owners who are experiencing financial hardship and struggling to make their monthly payment.
No Ongoing Monthly Mortgage Insurance Fee
Unlike other government-backed mortgage programs, the VA mortgage program does not require borrowers to pay an ongoing monthly mortgage insurance fee. For example, the government-backed FHA mortgage program requires that borrowers pay an ongoing monthly FHA mortgage insurance premium (MIP) and most conventional mortgages require borrowers to pay private mortgage insurance (PMI) if your loan-to-value (LTV) ratio is greater than 80%. FHA MIP and private mortgage insurance (PMI) are extra costs borrowers are required to pay in addition to their monthly mortgage payments. By not requiring monthly mortgage insurance, the VA streamline refinance program offers borrowers lower total monthly housing expense as compared to other home loan refinance options.
Applies to Non-Owner Occupied Properties
One of the unique features of the VA streamline refinance program is that it applies to non-owner occupied properties such investment or rental properties. Unlike other streamline refinance programs, with the VA streamline program borrowers are only required to certify that they previously occupied the property being refinanced but they do not need to currently live in the home. This allows borrowers to use the VA streamline refinance program with homes they previously lived in but that are now income properties or second homes.
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VA Streamline Refinance (IRRRL) Cons
Loan, Payment and Interest Rate Restrictions
The VA streamline refinance program imposes several restrictions on loan terms. First, the mortgage you refinance must be an VA loan, which is why a VA streamline refinance is also called a VA to VA refinance . If you do not have a VA mortgage you can still refinance your existing loan with a VA loan, assuming you are eligible for the VA program, but you cannot use the VA streamline refinance program.
VA Funding Fee
The VA streamline refinance program requires that borrowers pay a one-time, upfront VA funding fee. The VA funding fee for a VA streamline refinance is 0.5% of the loan amount. The funding fee can be added to the loan amount or paid out of pocket. For example, for a $250,000 loan amount, the upfront funding fee for a VA streamline refinance is $1,250 ($250,000 * 0.005 = $1,250).
More FREEandCLEAR Resources
VA Streamline Refinance (IRRRL) Guide
Review our comprehensive overview of the VA streamline refinance program including borrower qualification requirements, key mortgage terms and other important program information such as property eligibility guidelines.
VA Mortgage Rates
VA streamline refinances are provided by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions. Use our VA mortgage rate table to review updated VA mortgage rates and fees for lenders in your area. Even if your current lender offers VA streamline refinances you are not obligated to work with that lender when you refinance and you should shop lenders to find the mortgage with the best terms. Comparing rates from multiple lenders is the best way to save money on your mortgage.
Mortgage Refinance Assistance Programs
Review our comprehensive summary of government-backed and conventional mortgage refinance assistance programs. These programs are designed to help borrowers efficiently and cost-effectively refinance into more affordable and manageable mortgages.
VA Mortgage Calculator
Use our VA Mortgage Calculator to determine how much home you can afford with a VA mortgage based on your income, debt and other factors. The calculator also determines the upfront VA funding fee based on your down payment and if this is your first time using the VA program.
Sources
"Interest rate reduction refinance loan." VA. U.S. Department of Veterans Affairs, 2020. Web.