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How a VA Streamline Refinance (IRRRL) Works

How a VA Streamline Refinance (IRRRL) Works

  • Important VA Streamline Refinance Program Considerations
  • Pros Cons
    • Reduced borrower eligibility and qualification requirements for VA Streamline Refinance Program
    • Saves borrower time and money
    • Low mortgage rate
    • No ongoing monthly mortgage insurance fees
    • No borrower income limit
    • Restrictions on new mortgage interest rate and amount 
    • Extra cost of upfront VA funding fee
    • Lender may require appraisal and credit reports even though program does not
  • VA Streamline Refinance Program Summary
  • The VA Streamline Refinance Program, also known as an interest rate reduction refinance loan (IRRRL) or VA to VA refinance, enables borrowers to refinance an existing VA loan with fewer borrower qualification requirements and less documentation as compared to a standard refinance. The program is designed to make it easier for VA borrowers to refinance into a more affordable mortgage with a lower monthly payment.

    The primary benefits of a VA streamline refinance as compared to a regular mortgage refinance are that a VA Streamline Refinance does not require borrowers to verify their employment, income or credit score.  Additionally, the program does not apply a maximum borrower debt-to-income ratio under most circumstances or require an appraisal report.  The simplified VA Streamline Refinance requirements enable more borrowers to refinance their loan while saving money and time.

    You may ask how is it possible to refinance your mortgage with limited verification, no credit report or appraisal and the answer is that you are required to be current on your mortgage and minimal late payments over the past twelve months. This is a key VA Streamline Refinance requirement as lenders reason that if you have been paying your mortgage on time in the past you will continue to make your payments in the future, especially if you lower your monthly payment with an IRRRL refinance.

  • How a VA Streamline Refinance Works
  • You apply for the VA Streamline Refinance Program through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet program eligibility guidelines and qualify for the loan according to VA qualification requirements. Even if your current lender offers VA Loans you are not obligated to work with that lender and you should compare multiple loan proposals to find the best loan terms.

    We recommend that you contact multiple VA lenders listed in the table below to understand if they offer VA Streamline Refinances and to compare mortgage terms. Shopping multiple lenders and comparing loan proposals is the best way to save money on your VA refinance.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current VA Mortgage Rates as of November 21, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
  • VA Streamline Refinance Eligibility
  • We review the key VA Streamline Refinance eligibility guidelines below:

    Loan Status

    Borrowers must be current on their loan and can have no more than one late mortgage payment within the year prior to applying for a VA Streamline Refinance.  Borrowers may also be able to use the program even if they are delinquent on their mortgage as long as they provide a letter explaining the delinquency and resolve the delinquency when their refinance closes.  The VA must approve all mortgages for delinquent borrowers.

    Loan Eligibility

    The mortgage you refinance must be a VA loan. If you do not have a VA mortgage you can still refinance your existing loan with a new VA loan, assuming you are eligible, but you cannot use the VA Streamline Refinance Program.

    VA Certificate of Eligibility

    Borrowers are not required to provide a new certificate of VA eligibility to lenders.  With a VA Streamline Refinance borrowers use the same certificate of eligibility that they used for their original loan.  The lender may use the VA's email confirmation procedure for a streamline refinance instead of a certificate of eligibility.

    Property Occupancy

    For a VA Streamline Refinance you do not need to currently occupy the property, you only need to certify that you previously occupied the property.  This is more flexible than the occupancy requirement for other VA loans.

    Mortgage Rate

    A VA Streamline Refinance must result in a lower mortgage rate unless you are refinancing an adjustable rate mortgage into a fixed rate mortgage.  This is why the program is also called the interest rate reduction refinance loan or IRRRL program.  If you are refinancing an ARM into a fixed rate mortgage, your mortgage rate may increase as a trade-off for the greater certainty a fixed rate mortgage provides borrowers.  Mortgage rates on VA loans are .250% - .500% lower than the interest rate for most conventional mortgage programs because the loan is insured by the U.S. government and military personnel tend to be more credit-worthy borrowers.

    Mortgage Payment

    According to program guidelines, your new VA loan payment must be less than your original payment unless:  1) you are refinancing an adjustable rate mortgage (ARM) into a fixed rate mortgage, 2) you reduce your mortgage term or 3) you include the cost of energy efficiency home improvements in your new mortgage amount.

    Loan-to-Value (LTV) Ratio

    Although a VA Streamline Refinance does not technically apply a maximum loan-to-value (LTV) ratio, most lenders use an LTV ratio limit of 100%. LTV ratio represents the ratio of the loan amount to your property value so an LTV ratio of 100% means you can borrow up to 100% of your property value. To determine the LTV ratio lenders either use the property value from your existing VA loan or order a new appraisal, even though appraisals are not required according to program guidelines.

    Mortgage Program

    15, 20, 25 and 30 year fixed rate mortgages and 5/1 adjustable rate mortgages (ARMs) are eligible for the program. Interest only mortgages are not allowed.

    Mortgage Amount

    Your new VA loan amount may not exceed the sum of the outstanding balance on your existing loan plus allowable fees and closing costs, including the VA funding fee and up to two discount points.  You may also add up to $6,000 in energy efficiency improvements to the mortgage amount.  Some lenders offer "no cost" refinances by including all closing costs in the new loan.  Please note that if you select a no cost loan you usually pay a higher interest rate, which increases your monthly payment and may end up costing you more money in interest expense over the life of the loan.  Borrowers can also pay for closing costs out of pocket to obtain a lower mortgage rate as compared to a no cost refinance.

    Loan Limits

    From a technical standpoint, loan limits do not apply to VA Streamline Refinances but from a practical standpoint your new loan amount is almost always below the VA loan limit. 

    Type of Refinance

    The VA Streamline Refinance Program only permits rate and term refinances which means that the only terms of your mortgage that can change are your program, interest rate and mortgage length. In most cases borrowers lower their interest rate but keep their loan length the same with their new mortgage.  Cash-out refinances are not allowed through the program although borrowers can use $6,000 in mortgage proceeds for energy efficiency home improvements if they combine a VA Streamline Refinance with the VA Energy Efficient Mortgage (EEM) Program.

    No loan other than your existing mortgage may be paid from the proceeds of a VA Streamline Refinance. If you have a second mortgage, that lender must agree to subordinate that loan so that your new loan will be a first mortgage which means it is the first priority lien against the property.

    VA Funding Fee

    Borrowers pay a one-time, upfront VA funding fee. The 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 $200,000 loan amount, the upfront funding fee is $1,000 ($200,000 * 0.005 = $1,000).

    Prepayment Penalty

    There is no prepayment penalty on VA loans.

    Use our personalized mortgage quote feature to compare loan terms for leading VA lenders near you. Our quote form is free, easy-to-use and requires minimal personal information. Comparing multiple mortgage proposals enables you to find the best VA refinance loan terms.

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  • VA Streamline Refinance Requirements
  • As summarized below, VA Streamline Refinance mortgages have reduced qualification requirements as compared to a regular refinance programs.  The more lenient loan requirements enable more borrowers to refinance their VA loans.

    Borrower Credit Score

    Applicants are not required to submit a credit report or score making the program ideal for borrowers who have experienced a decline in their credit score. Borrowers with lower credit scores may find it challenging to qualify for a mortgage or pay a higher mortgage rate but this does not apply to VA Streamline Refinances. Please note that although the program does not require borrowers to provide their credit score some lenders may order your credit report to fulfill their internal underwriting rules.

    Borrower Debt-to-Income Ratio

    The VA streamline refinance program does not apply a maximum borrower debt-to-income ratio unless your new monthly mortgage payment increases more than 20% as compared to your existing payment.  Not applying a debt-to-income ratio make it easier for borrowers who have experienced a decrease in their income or an increase in their debt qualify for the program.  If your new monthly mortgage payment increases more than 20% as compared to your old payment, lenders use the VA borrower residual income analysis and apply a 41% debt-to-income ratio to determine your ability to qualify for the mortgage.

    Borrower Income Limit

    Unlike some other mortgage assistance programs, the VA Streamline Refinance Program does not apply borrower income limits.

    Use the FREEandCLEAR Lender Directory to find lenders that offer VA Streamline Refinance loans and other refinance assistance programs.

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  • Great Mortgage IdeaRelated FREEandCLEAR Resources

  • Sources

    VA IRRRL Program: https://www.benefits.va.gov/homeloans/irrrl.asp

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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