VA streamline refinance: How it works and when to get one

If you have a mortgage loan backed by the Department of Veterans Affairs, you may be able to save money on your monthly payments with a VA streamline refinance. A VA streamline refinance allows you to reduce your interest rate or switch to a fixed-rate mortgage, and it’s only available to eligible military members, veterans, and their spouses.

Applying for a VA streamline refinance is a relatively simple process and could save you thousands of dollars over the life of your home loan.

• What is a VA streamline refinance?
• A VA streamline refinance replaces your existing VA loan
• Benefits of a VA streamline refinance loan
• Drawbacks of a VA streamline refinance loan
• VA streamline refinance eligibility guidelines
• VA IRRRL costs
• How to apply for a VA IRRRL
• Alternatives to a VA streamline refinance

What is a VA streamline refinance?

A VA streamline refinance is a simple way for you to save money on your VA loan. Refinancing your VA home loan with a streamline refinance can help you lower your interest rate and monthly payment and change from an adjustable-rate mortgage to a fixed-rate loan.

These loans are also known as VA interest rate reduction refinance loans, or VA IRRRLs.

HOW TO REFINANCE YOUR MORTGAGE

A VA streamline refinance replaces your existing VA loan

When you refinance a mortgage loan, you replace your current mortgage with a new loan. The new loan will include new terms and conditions you and your lender agree on during the refinance process.

One of the main draws of a VA streamline refinance is a potentially faster refinancing process. In a traditional refinance, borrowers must have an appraisal of their home. A VA IRRRL doesn’t require an appraisal, and there’s less paperwork involved.

VA streamline refinance rates

On average, VA mortgage rates are lower than interest rates on conventional loans. So, if you have a higher rate on your VA loan, you may be able to save more money on your monthly payment by refinancing into another VA loan rather than a conventional loan.

Benefits of a VA streamline refinance loan

A VA streamline refinance loan has several benefits, including:

• Lower interest rate — Many borrowers refinance to reduce the interest rate on their loan. A difference of even 1% could save you hundreds of dollars on your monthly payment and the total cost of your loan.
• Quick closing — VA streamline refinance loans have fewer underwriting requirements than a traditional refinance. Because of that, they typically offer a faster closing.
• Less documentation needed — You'll need less paperwork since you’re refinancing from one VA product to another. An IRRRL, for example, doesn’t require a Certificate of Eligibility (COE), but you should still show your COE to your lender to prove that you previously used your entitlement.
• No appraisal required — In many cases, you won’t need a home appraisal when refinancing your VA loan with an IRRRL. No appraisal means a faster refinancing process and fewer fees.
• No credit check required — Some lenders may have additional credit requirements you’ll need to meet for approval, but in general, VA IRRRLs don’t require a credit check. You may be able to take advantage of lower rates even with a less-than-stellar credit score.

Drawbacks of a VA streamline refinance loan

While VA streamline refinance loans have several benefits, there are some drawbacks to consider as well:

• Existing VA loan required — You can only qualify for a VA IRRRL if you currently have a VA loan.
• Closing costs — Refinances aren’t free. VA streamline refinances typically require you to pay a loan origination fee, title insurance fee, and recording fee, among many others. You can roll most of these closing costs into the loan, but you’ll accrue interest on them throughout the life of your loan.
• Funding fee — All IRRRL loans require a VA funding fee of 0.5% of the total loan amount. You can either pay this upfront or roll it into the loan.
• Restarts the loan term — Since you’re replacing your old loan with a new one during your refinance, the loan term may restart if you opt to refinance into a new 30-year loan. You have the option to refinance into a shorter-term (15-year) loan, but your payment would likely increase.
• No cash out — A VA IRRRL loan doesn’t allow you to access your home equity. The primary purpose of an IRRRL is to reduce your interest rate. If you need cash from your equity, consider a VA cash-out refinance.

HERE’S WHY YOU SHOULD (OR SHOULDN’T) REFINANCE YOUR MORTGAGE

VA streamline refinance eligibility guidelines

Before you apply for a VA streamline refinance, make sure you meet all qualifying criteria.

Your current lender can help you confirm that your mortgage allows for a VA streamline refinance.

VA IRRRL costs

Like all refinances, IRRRL loans come with closing costs. On average, lenders charge between 2% and 5% of the total loan amount. For example, if you refinance a $200,000 loan, your closing costs could be between $4,000 and $10,000. Lenders usually allow you to roll the fees into the loan total, but you’ll accrue interest on them with the rest of your loan.

In addition to the standard closing costs associated with a mortgage refinance, you’ll need to pay a 0.5% funding fee. The purpose of the funding fee is to help the VA continue to provide VA loans to other borrowers. Some borrowers may have the funding fee waived. For example, you can request a waiver if you have a service-related disability or received the Purple Heart.

How to apply for a VA IRRRL

When you’re ready to apply for your refinance, here’s what you need to do:

1. Choose a lender. You can work with your current lender or compare VA refinance rates from different lenders. Consider comparing rates from at least three VA loan lenders to improve your chances of securing the best rate.
2. Submit your application. Once you’ve chosen a lender, you’ll submit your application. While you technically don’t need a COE to obtain a VA streamline refinance, you should still show it to your lender to prove that you used your entitlement. If you don’t have a copy of your COE, you or your lender can get this document online from the VA Home Loan program portal.
3. Close on your loan. Follow your lender’s closing process, including signing documents and paying the closing costs. Your lender may allow you to roll the closing costs into the loan amount.

​​WHEN IS THE RIGHT TIME TO REFINANCE MY MORTGAGE?

Alternatives to a VA streamline refinance

While there are many benefits to a VA streamline refinance, not all borrowers qualify, and it might not be the right fit for your needs. Some other options to consider include:

• VA cash-out refinance — Unlike a VA IRRRL, you can receive cash from the equity in your home with a VA cash-out refinance loan. You’ll need to prove that you qualify for a VA loan (proof of qualifying military service), and you’ll need to provide income and credit history for approval. This type of VA refinance allows you to refinance from a conventional loan to a VA-backed loan.
• Conventional refinance — You might also consider replacing your existing VA loan with a conventional loan. You’ll need to have a good credit score and payment history to qualify, but you won’t need to prove military service.
• Refinance with an FHA loan — Conventional loans typically have stricter credit score requirements. If your finances are less than ideal, refinancing into an FHA loan might be a better option. If you already have an FHA loan, you may qualify for an FHA Streamline Refinance. Like a VA IRRRL, an FHA Streamline Refinance doesn’t require a credit check or an appraisal.
• Home equity loan — If you need to access your home equity, a VA IRRRL won’t help. But you might qualify for a home equity loan, which could provide you with additional funds to cover a significant expense. Keep in mind that a home equity loan is considered a second mortgage — meaning you’ll make payments on it in addition to your current VA loan.