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VA IRRRL: What is it, and who’s eligible?
By Aly J. Yale MONEY RESEARCH COLLECTIVE
VA loans come with many benefits. They have low interest rates, they require no down payment or mortgage insurance, and they limit your closing costs, too. They’re also easy to refinance, thanks to the VA IRRRL program.
Are you looking to refinance your existing VA loan? Here’s what to know about using a VA IRRRL to do it.
Table of Contents
- What is the VA IRRRL program?
- How does the VA IRRRL work?
- What are current VA IRRRL rates?
- What are the requirements for a VA IRRRL?
- What are the pros and cons of a VA IRRRL?
- What’s the funding fee for a VA IRRRL?
- How can you apply for the VA IRRRL program?
- VA IRRRL FAQs
- Summary of our guide to VA IRRRL
What is the VA IRRRL program?
The VA IRRRL program is the Department of Veterans Affairs’ Interest Rate Reduction Refinance Loan. These are often referred to as “VA streamline refinances” or “VA streamlined loans,” as they’re meant to be a quick and fairly easy way to refinance an existing VA loan.
With VA IRRRLs, homeowners who already have a VA mortgage can replace their loan with a new loan at a lower interest rate. Borrowers can also use the program to replace an adjustable-rate VA loan with a fixed-rate one.
How does the VA IRRRL work?
A VA IRRRL lets you replace an existing VA loan with an entirely new mortgage. You apply for a new loan, ideally one with a lower interest rate or better terms, and once approved, that loan is used to pay off your old one. You’re then left with just the new, more favorable loan.
Unlike other refinance options, the VA Interest Rate Reduction Refinance Loan doesn’t require an appraisal, nor will your lender need to check your credit score or debt-to-income ratio again. This allows for a faster and more hassle-free process than most other loan programs (including a traditional VA mortgage refinance).
What are current VA IRRRL rates?
Like all mortgage rates, the rates on VA IRRRL loans fluctuate. The current average on a 15-year VA IRRRL (as of April 28, 2023) is 7.125%, according to major VA lender Veterans United.
Keep in mind that most advertised rates are only available to borrowers with the highest credit scores — usually 740 or above. The exact rate you will qualify for will depend on your credit score, loan amount, the mortgage lender you choose and other factors.
What are the requirements for a VA IRRRL?
To qualify for VA streamlined loans, your existing mortgage must be a VA mortgage. If you have an FHA loan, USDA loan or conventional mortgage, you aren’t eligible.
Other VA loan requirements include:
- The home must be your current or former primary residence (you can’t use this loan for real estate investment)
- You must have had your current mortgage loan for at least 210 days (seven months)
- The new loan must have a lower interest rate and monthly payment than your current mortgage
There are a few exceptions to that last requirement, including if you’re refinancing from an adjustable-rate mortgage to a fixed-rate one, or if you’re choosing a shorter loan term than you currently have.
You also need to be current on your mortgage payments. If you’re 30 days or more late on your payments, you may still be approved, but you will be required to undergo a credit check and a more thorough analysis of your finances.
What are the pros and cons of a VA IRRRL?
VA streamline loans have a lot of benefits, but they’re not perfect. If you’re considering one, make sure to weigh both the pros and cons before moving forward.
- No appraisal
- No credit check
- Faster processing
- Allows you to finance your closing costs and funding fee
- Come with a funding fee and closing costs
- Don’t allow you to take cash out
- Restarts your loan term
- You must have a current VA loan to be eligible
Pros of a VA IRRRL
The biggest perk of a VA IRRRL is that you don’t need a home appraisal, nor will you need to go through the full documentation and underwriting process that most mortgage loans require. This can make for a much faster, easier and less expensive process on the whole.
Another benefit of VA streamline loans is that you can finance your closing costs, VA funding fee, discount points and even any late payments you owe on your current loan. You can also include the cost of energy efficiency improvements to your home, up to $6,000.
Cons of a VA IRRRL
On the downside, VA IRRRLs do come with closing costs and a funding fee, though you can roll these into your loan balance.
Additionally, you can’t use VA IRRRLs to take cash out of your home. If you’re hoping to tap your home equity, you’ll need to use a VA cash-out refinance instead. These require the traditional appraisal (to confirm your home’s value) and underwriting process that your original VA loan came with, including an assessment of your loan-to-value ratio. Cash-out VA refinance loans typically take longer to close than a VA IRRRL.
Finally, a VA IRRRL — and any refi, for that matter — means restarting your loan term over again. With fixed-rate mortgage loans, the bulk of your payments go toward interest early in the life of the loan, so starting a new mortgage term might not be wise if you’re planning to move soon.
What’s the funding fee for a VA IRRRL?
All VA home loans come with a funding fee, which is used to help support the VA program and its goal of providing affordable loan options for active duty military service members, veterans and their surviving spouses.
The exact cost of this fee varies based on the type of VA loan you’re getting, as well as your down payment (for homebuyers). On VA streamline loans, the funding fee is 0.5% of the loan amount. This is significantly lower than VA cash-out refinances, which have a funding fee of between 2.15% and 3.3%.
How can you apply for the VA IRRRL program?
To apply for a VA IRRRL, you first need to find a VA-approved lender. You can start with your current mortgage lender, but make sure to get quotes from others, too. Rates and terms can vary widely from one mortgage provider to the next, so comparing a few options will ensure you get the best deal.
Once you’ve found a lender you want to work with, fill out their application, provide your Certificate of Eligibility/COE (or ask them to pull a new one for you through the VA Home Loan program portal), pay your funding fee and closing costs, and then you can close on your new loan.
VA IRRRL FAQs
How many times can you use VA IRRRL?
You can use a VA IRRRL as many times as you’d like and are eligible to do so. Just keep in mind that you must have a VA loan for at least 210 days before you can apply for an IRRRL again.
When can you do a VA IRRRL?
You can do a VA IRRRL when at least seven months — or 210 days — have passed since the due date on your current loan’s first monthly payment.
How long does it take to close a VA IRRRL?
The exact amount of time it takes depends on your lender, but some companies say they can close VA IRRRLs in as few as 10 days.
How much does a VA IRRRL cost?
VA IRRRLs come with a 0.5% funding fee and various closing costs, which can include origination fees, discount points, prepaid taxes and insurance, title fees, flood zone determination fees and more. These vary widely, but you can generally expect to pay between 2% and 5% of your loan amount.
The VA does set limits on certain closing costs. For example, a lender can’t charge you more than 1% for origination, processing or underwriting fees.
Is a VA IRRRL a second mortgage?
VA IRRRLs are not second mortgages. Instead, they replace your existing mortgage with a new loan entirely. Home equity loans and HELOCs are examples of second mortgages, as they come with a second monthly payment in addition to your main mortgage.
Summary of our guide to VA IRRRL
If you have a VA loan and want to lower your mortgage rate, save money on your monthly payment or change from a variable rate to a fixed-rate loan, a VA IRRRL may be an option. These loans can be closed much faster than typical refinances, and there’s no underwriting or credit check, either, as long as your current mortgage is in good standing.
If you’re considering a VA IRRRL, view our VA loan tips and contact a VA-approved lender to gauge your eligibility. Not sure which lender to use? See our recommendations for the best VA loan lenders.
