VA Streamline Refinance (VA IRRRL): What Is It And How Does It Work?

The VA loan program allows eligible veterans, active-duty service members, reservists, National Guard personnel and qualifying surviving spouses access to mortgage options without a down payment or private mortgage insurance.  Millions of military veterans and active personnel have taken advantage of this unique housing benefit from the Department of Veterans Affairs (VA). 

A VA IRRRL is also referred to as a VA Streamline, and the terms are often used interchangeably.   Lenders use the term “streamline” to imply that the IRRRL process is simpler and faster than other types of refinancing options.   A VA Interest Rate Reduction Refinance Loan (IRRRL, pronounced “earl”) may help you refinance to a lower interest rate.

How Does A VA Streamline Refinance Work?

The word “streamline” is lender-speak for a simplified and less expensive refinance process.  With a streamlined process, there’s often no new appraisal and underwriting is often simplified.   And, as long as you’re up to date on your mortgage payments, you should be approved for a streamline loan.   The streamlined process moves quickly, and the closing costs can typically be rolled into the new loan.

           NO appraisal is required.
           NO income or asset documentation.
           NO hard credit pull is needed.
           Closing costs can be rolled into the loan.
           The VA funding fee is capped at .50 (and some veterans may be exempt from this fee).
           Limited underwriting, so loan approval is usually in 10 days or less!
           You will skip at least one monthly payment.

The VA will only allow you to take advantage of a VA Streamline refinance of your loan if the new terms provide you with an immediate financial benefit, such as a lower interest rate or a lower monthly payment.   You can’t refinance your loan just because you don’t like your current lender or for any reason that doesn’t directly relate to your finances.

VA IRRRL Advantages And Disadvantages

If you secure an IRRRL, you'll likely be securing one of the lowest interest rates out there.  While you'll want to research current mortgage rates in order to find the best IRRRL rate available, you'll also want to understand the advantages and disadvantages when it comes to securing a VA IRRRL.

VA IRRRL Streamline Refinance Pros:

The VA Streamline refinance program offers many benefits over other refinance options.

Lower Interest Rate:

The most common reason why veterans and their family members refinance their VA loans is that they’d like to secure a lower interest rate and monthly payment. The VA strongly prefers that borrowers seeking a VA IRRRL secure a lower interest rate than their original mortgage loan has, unless the loan they are refinancing is an ARM.

Lower Monthly Payments:

When it comes to how refinancing works with a VA Streamline, your monthly payments often decrease.  Lower monthly payments may result from an extended term on the loan, which allows more time to pay on your mortgage. A lower interest rate could also result in a lower monthly payment if the length of the loan is held equal.

Lower Funding Fee:

The VA loan program requires borrowers to pay an upfront funding fee that can either be paid at closing, offset with a lender-paid credit, or rolled into the loan balance.

For a VA Streamline, the funding fee is 0.5% of the loan amount.   Some veterans are exempt from the fee.

Potential Change In Mortgage Structure:

As a reminder, refinancing with a VA Streamline could allow you to move from an adjustable-rate mortgage to a fixed-rate loan. ARMs change over time, depending on rate fluctuations.   Fixed-rate mortgages lock in a single interest rate until you pay off your loan.

VA IRRRL Streamline Refinance Cons:

There are some costs and limits to a VA Streamline to consider.

You Must Be Current On Your Mortgage:

You must be current on your mortgage payments.  This means that you can’t be more than 30 days late on a payment in the last 6 or 12 months depending on how you qualify.

It’s Only Applicable To Your Current Property:

As we discussed above, only service members or qualifying surviving spouses with current VA loans can take advantage of a VA IRRRL and that refinance is only applicable to the loan on your current home. You may change mortgage lenders or your mortgage specifics, not your actual property.  This means you can’t switch this loan into a new property; it must be refinanced into the property you purchased with the VA loan you’re now refinancing.

Strict Eligibility Requirements:

To qualify for a VA Streamline, you must have a VA loan to begin with.   You’ll need to be in good standing with your lender, current on your mortgage payments and be able to prove that the refinance will lower your interest rate.   Some borrowers may not be able to meet these requirements.

Closing Costs:

With closing costs also could come a VA IRRRL funding fee.  A borrower can choose to roll over these costs into their new loan balance, which means they’ll still be paying for them with interest on top.

Mortgage Length:

VA loan refinances are flexible, and there’s no rule that says you must extend your mortgage.  Depending on the situation, you might have a longer mortgage length – and it might take a longer time to pay off.   This could be a negative for some borrowers.

Seasoning Required:

It’s important to note that you must wait 270 days from the closing of your original mortgage to apply for the VA Streamline.  You must also have made six consecutive monthly payments on your loan, and there must be 210 days between your first mortgage payment and the closing on the VA Streamline.