VA IRRRL: Streamline Refinance Requirements And Benefits

Do you want to take advantage of lower interest rates? Or maybe there’s some merit to changing your mortgage term. Perhaps you’d like to use either benefit but haven’t done it yet because you owe more on your home than it’s worth. The VA Streamline refinance program could help.

In this article, we'll go over what you need to know about a VA IRRRL Streamline refinance and why it could be a good option for homeowners looking to refinance a VA loan.

What Is A VA Streamline Refinance (VA IRRRL)?

A VA Streamline refinance (VA IRRRL) is a mortgage refinance option for veterans and active-duty service members with a current loan backed by the Department of Veterans Affairs, also called a VA home loan. VA IRRRLs give borrowers the chance to refinance their existing loan to reduce their interest rate or stabilize their monthly mortgage payments.

In fact, the formal name of this mortgage option is Interest Rate Reduction Refinance Loan (IRRRL), but you might also see it referred to as an “Earl” after the pronunciation. For the sake of consistency, we’ll just call it a VA Streamline or VA IRRRL from here on out.

What You Need To Know About The VA IRRRL Program

While there are many benefits to a VA Streamline refinance, there are some factors you should know about before moving forward.

The Purpose Of A VA Streamline

The idea of a VA Streamline is to provide borrowers who have a VA home loan with a smoother process if they’re looking to lower their rate or change their loan term. Since you need to have a VA loan to qualify for a Streamline refinance, this option is straightforward and requires less paperwork than a full refinance. That’s why it’s called a “streamline.”

A Streamline refinance also allows a homeowner with a VA adjustable-rate mortgage to change their loan to a VA fixed-rate mortgage with less effort and lower closing costs.

One thing you can’t do is take cash out with this loan option. To utilize your home equity, look into a full VA refinance. We’ll get into the differences later on.

Borrower Eligibility

To get a VA Streamline, you have to have an existing VA home loan in place. Although, it’s probably beneficial to go over what the guidelines are for VA eligibility, just for reference.

To get a VA loan, you need to be an eligible active-duty service member, reservist, veteran or surviving spouse – the spouse of someone who passed while in service or as a result of a service-connected disability.

The eligibility of active duty service members, reservists and veterans is based on service time. The exact amount of time you have to spend in service to be eligible depends on when you served.

The VA has more detailed breakdowns defining service time requirements that we recommend checking out. However, in most cases, the service member needs 90 days of active service during wartime, not necessarily continuous. If the service isn’t during a war, you need 181 continuous days of active service.

If you’re a reservist who’s been called to active duty, regular service requirements apply. If you’re currently serving in the reserves or have retired while never being called to active duty, you need 6 years of creditable service, not necessarily consecutive.

There are other conditions you must meet to be considered for a VA Streamline refinance. Some lenders will require you to have a credit score of at least 620. You might also need to prove that the property your refinancing is your primary residence or was at one point. 

Streamline Refinance Waiting Period

The VA has some special prerequisites regarding the length of time you have to wait before you can refinance into a new loan. You may hear this referred to as the seasoning period.

In terms of a timeline, there are three big requirements homeowners need to know about:

1. There have to be at least 270 days between the application date for your refinance and the closing date of your previous loan.
2. You have to have made at least 6 consecutive months of payments on your previous loan to refinance. You can’t pay ahead to get to that point.
3. There have to be 210 days between the first payment on your prior loan and the closing date on your VA Streamline.

There also has to be a net tangible benefit for you as the borrower to complete the refinance. There are several different ways your loan can pass this test, but a couple of them include a reduced interest rate or lower monthly payment.

VA Streamline Benefits

Now that we’ve gone over the requirements for getting a VA Streamline, let’s go over the benefits and why you might want one.

Financing Flexibility

This option offers some additional perks that aren’t necessarily available from other loan programs. Most of the time, when you refinance, you need a minimum amount of equity in your home before you can take advantage of lower rates.

If you’re in that position, we have some good news. Veterans, active duty servicemembers and surviving spouses who qualify for VA loans can refinance up to 100% of their home’s value. Most lenders usually only allow 80 – 85%, so this is a significant benefit for homeowners with low equity. You’ll just have to make sure that your loan-to-value ratio is within the VA’s limits and that you’re not refinancing your home for more than it’s worth.

Reduced Funding Fee

One great benefit of any VA loan is that you don’t have to pay for mortgage insurance. Instead, you just pay a flat funding fee that can either be paid at closing or rolled into the cost of the loan.

When you get a VA Streamline, you pay a reduced funding fee that’s just 0.5% of the loan amount. This saves you a lot of money on your refinance.

Finally, as with all VA loans, if you have a service-connected disability, you’re a qualified surviving spouse or an active duty servicemember who has received the Purple Heart, you don’t have to pay the funding fee.

Fewer Hurdles

If you’re getting a VA Streamline a little less documentation is required and the appraisal process may be easier.

In fact, you may not need an appraisal. But if you do, it’s a little easier because the appraiser can do a drive-by appraisal on these loans. You don’t even have to be home for the appraiser to take some pictures of your property and evaluate its worth.

Not only does this make the whole process faster and more convenient for borrowers, it also helps reduce the cost of the loan because you won’t be paying as much for the appraisal. Unlike many VA loans, VA Streamlines don’t require a pest inspection unless the appraiser thinks there’s a problem.

VA Streamline Refinance Rates

While VA refinance loans can have some of the lowest interest rates on the market, it’s important to note that VA refinance rates tend to vary from customer to customer. The mortgage rate you receive will be impacted by your loan size, credit score and more.

Speak with a lender to find out more information about what VA Streamline refinancing rates you can qualify for.

What’s The Difference Between A VA IRRRL And A Full Refinance?

The VA Streamline refinance has many advantages, but there are some situations in which it makes sense to do a full refinance.

First, to do a Streamline, you must already have an existing VA loan. If you don’t, a full refinance is required.

Next, while you can only lower your rate or change your term with a VA Streamline, you’re able to convert up to 100% of the equity in your home into cash with a full VA refinance.

It’s worth noting that if you do a full refinance, more documentation will be required, including your VA Certificate of Eligibility (COE) for your home loan. If you don’t already have yours, we can help you request it from the VA. An appraisal will also need to be performed.

The Bottom Line

If you think taking advantage of a VA Streamline or other refinance option might make sense for you, right now may just be the best time to move ahead. You can apply online or talk with our Home Loan Experts today.