What is VA Streamline Refinancing and How Can It Benefit You?
VA Streamline Refinancing is a different way of referring to the VA Interest Rate Reduction Refinance Loan, or VA IRRRL (pronounced “Earl”) and is an option for some homeowners who utilized a VA Loan to purchase their house.
The VA IRRRL
In short, a VA IRRRL refinances your current VA-backed mortgage into an entirely new loan agreement with the purpose of improving the original loan, ie: lower interest rate, lower/better payment schedule, etc. It is one of the best options for homeowners who already have a VA Loan that isn’t as good as what is being offered in the current market. This is often called VA Streamline Refinancing because it’s streamlined – it’s simpler than other refinancing options out there. Due to it not always requiring VA appraisal or a typical underwriting process, it saves time (by reducing paperwork) and money (by cutting out added fees).
>> Rates are still at historic lows! You may be eligible for a zero down VA home loan? For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.
Refinancing is the act of replacing an existing loan with a new loan which pays the debt of the original loan and ideally has better terms or features. According to money guru Dave Ramsey, there are three main instances in when refinancing can be a good idea:
- You have an Adjustable Rate Mortgage (ARM) (meaning your interest rate is adjustable and moves the risk of changing/rising interest rates to the homeowner instead of the lender).
- The length of your mortgage is over 15 years (however, if the interest rate on a 30-year fixed-rate mortgage is low enough already, make sure the shorter term isn’t going to end up costing you more).
- You have a high interest rate loan (if current market interest rates are lower than your current mortgage’s rates, finding a loan with a reduction of 1-2% (or even more) interest or one that shortens your payment schedule, is something to consider).
**Note that while Dave Ramsey actually has four main reasons, the fourth cannot apply in the case of a VA IRRRL because you cannot use this benefit to pay off a second mortgage.**
How Does It Work?
You must meet eligibility rules of a VA loan, work with a VA-approved lender, and have a refinancing result that actually proves financially beneficial. While there are exceptions to some rules, generally, you cannot utilize the VA IRRRL to get a cash-out/tap into home equity.
Based on laws established within the 2018 Protecting Veterans from Predatory Lending Act, you cannot begin the process of this refinancing option until roughly six months into your original VA home loan; you have to have made at least 6 consecutive, up-to-date monthly payments.
You do not have to actively live in the home to be eligible, you only have to prove that you have lived in the home, which you are hoping to streamline refinance, in the past. Also, you do not need a new Certificate of Eligibility (COE). Some lenders though may ask for a copy of the original COE from when you first purchased your house. There is no need for an additional appraisal process, either.
Additional Costs to Consider
There is an upfront funding fee of 0.5% of the loan amount, which acts as a pooled-payment to the VA which covers changes/defaults of all those who benefit from the VA’s services; there are possible exceptions to this fee. It is lower than typical refinancing options.
Closing costs, “discount points,” and origination/lender fees may also be additional expenses. These can vary from lender to lender.
Some states or local government agencies may expect government recording fees as well, for legally recording the deed/mortgage/relevant documents.
Both the funding fee and closing cost (and sometimes these other additional charges) can be rolled into the new IRRRL so there are no out-of-pocket expenses. However, they shouldn’t come as a surprise to you. The loan disclosure documents should explain everything, and if you don’t understand, ask questions of your lender.
Due to market conditions, refinancing may be more challenging than in the past. If you can’t pay your current home loan, check out some of these resources:
- Help For Military Families During COVID-19 Pandemic
- CARES Act and What It Means For Your VA Loan
- Guidance For VA Home Loan Borrowers During COVID-19
- What to Do If You Can’t Pay Your Mortgage
- COVID-19 Stimulus Programs For Homeowners And Renters
>> Interested in a no PMI, zero down payment possible home loan? For a no-obligation, free consultation regarding your VA Loan eligibility, please go here.
- The VA Loan, A Military Benefit You Should Use
- Best Practices For the VA Loan Process
- VA Loan: Can You Borrow More Than Your House is Worth?
- VA Loan Eligibility Expanded for National Guard
- What Do You Need to Know About VA Loans?
- Military Families: Should We Buy a Home?
About the author
Samantha Cain has 10 years of experience as a freelance writer and content creator, specializing in a variety of topics such as higher education, personal finance, event planning, DIY projects, and military life. She holds a BA in English, is working towards an MS in Higher Education, and has been a military spouse for eight years. Having lived on a number of overseas military bases, she brings a unique perspective to her writing and strives to provide quality and beneficial information to the military community.