How Veterans Can Benefit from the VA Loan Streamline Refinance (IRRRL)

If you already have a VA-backed mortgage, you may have heard about the VA Interest Rate Reduction Refinance Loan, commonly called an IRRRL or VA Streamline Refinance.

An IRRRL is designed specifically for homeowners who already have a VA-backed home loan and want to refinance that existing VA mortgage. Depending on the circumstances, an IRRRL may help reduce the interest rate and monthly principal-and-interest payment or provide a more stable mortgage payment.

However, refinancing isn't automatically beneficial simply because a lower interest rate is available. Closing costs, the new loan term, the amount financed and how long you expect to keep the mortgage should all be considered.

If you have a VA loan on a home in Annapolis, Anne Arundel County or elsewhere in Maryland, here's what you should know before considering a VA Streamline Refinance.

What Is a VA IRRRL?

An Interest Rate Reduction Refinance Loan is a VA-backed refinance program for homeowners who already have a VA-backed mortgage.

It is sometimes called a VA Streamline Refinance because the process can be different from obtaining a new purchase mortgage or other types of refinances.

An important limitation is that an IRRRL is a VA-to-VA refinance. In other words, the mortgage being refinanced must already be VA-backed.

If you currently have another type of mortgage and want to refinance into a VA loan, an IRRRL isn't the appropriate VA refinance program.

Who May Be Eligible for a VA Streamline Refinance?

According to the Department of Veterans Affairs, you may be eligible for an IRRRL if:

You already have a VA-backed home loan
You're using the IRRRL to refinance that existing VA-backed loan
You can certify that you currently live in or previously lived in the home securing the loan

Additional VA and lender requirements apply, so eligibility for an existing VA loan doesn't automatically mean every proposed refinance will qualify.

Does an IRRRL Require a Home Appraisal?

One reason IRRRLs are commonly described as “streamline” refinances is that a traditional appraisal generally isn't required under the standard VA IRRRL process.

However, individual circumstances and applicable loan requirements matter, so borrowers shouldn't assume that every refinance transaction will follow exactly the same process. VA guidance contains exceptions to the general appraisal rule.

Do You Have to Currently Live in the Home?

The occupancy requirement for an IRRRL differs from the requirement for a VA-backed purchase loan.

For an IRRRL, VA allows the veteran to certify that they previously occupied the property as their home. This can be particularly useful for military families whose circumstances have changed since purchasing the property.

This is one of the important differences between an IRRRL and a VA purchase loan.

How Soon Can You Refinance a VA Loan With an IRRRL?

VA IRRRLs are subject to loan-seasoning requirements. This means a borrower generally can't obtain a VA mortgage and immediately refinance it through an IRRRL.

Applicable requirements include a minimum number of consecutive monthly payments and a minimum period measured from the first payment due date of the existing loan.

Your mortgage professional can review the existing loan dates and payment history to determine when a proposed refinance may meet applicable requirements.

What Is the Net Tangible Benefit Requirement?

An IRRRL is intended to provide a financial benefit to the veteran rather than simply replace one VA loan with another.

VA requirements include net tangible benefit standards for IRRRL transactions. Depending on the transaction, factors involving the interest rate, loan type and other terms can be relevant.

This is one reason borrowers should evaluate more than an advertised interest rate when considering a refinance.

What Does It Mean to Recoup the Closing Costs?

Refinancing can involve closing costs, even when the new interest rate or payment is lower.

VA has requirements concerning the recoupment of certain fees, closing costs and expenses associated with an IRRRL. The basic idea is to consider how long it takes for applicable savings from the refinance to offset certain costs of obtaining the new loan.

For the homeowner, this is also a useful way to think about whether refinancing makes financial sense—particularly if you don't expect to keep the mortgage for very long.

Can IRRRL Closing Costs Be Added to the New Loan?

VA allows certain IRRRL closing costs to be included in the new loan rather than requiring the borrower to pay all of them upfront.

Another possible structure is for the lender to cover certain costs in connection with the interest rate offered.

Either approach should be evaluated carefully because adding closing costs to the loan increases the new loan balance, while lender-paid costs may affect the interest rate.

Can You Take Cash Out With a VA IRRRL?

An IRRRL is not designed as a cash-out refinance program. VA specifically distinguishes an IRRRL from its VA-backed cash-out refinance option.

A homeowner who wants to access home equity would need to explore whether a different refinance option is appropriate.

Should You Refinance Your VA Loan?

A lower interest rate can be attractive, but rate alone doesn't determine whether refinancing makes sense.

Consider the entire transaction, including:

The new interest rate and APR
Current payment compared with the proposed payment
Closing costs
New loan balance
Remaining term on your existing mortgage
Term of the new mortgage
VA funding fee, if applicable
How long you expect to keep the loan
How long it may take to recover applicable refinance costs

For example, repeatedly restarting a new 30-year mortgage solely to obtain a lower payment may have different long-term consequences than choosing a shorter loan term.

The goal should be to determine whether the overall refinance provides a meaningful financial benefit for your particular circumstances.

Explore Your VA Refinance Options

If you currently have a VA-backed mortgage, Redwood Mortgage Services can help you review your existing loan and explore whether a VA Interest Rate Reduction Refinance Loan may make sense for your situation.

For a broader overview of VA financing, visit our VA Home Loans in Annapolis, MD page to learn about VA eligibility, entitlement, purchase loans, refinancing and other VA home loan topics.

All loans subject to approval. Equal Housing Lender.

Frequently Asked Questions

Does a VA IRRRL require an appraisal?

A traditional VA appraisal generally isn't required for a standard IRRRL. However, individual loan circumstances and lender requirements can vary.

Can I get cash out with a VA IRRRL?

An IRRRL is not designed as a cash-out refinance. Homeowners who want to access equity may need to consider a different refinance option.

Do I have to live in the home to use an IRRRL?

VA allows an eligible borrower using an IRRRL to certify that they previously occupied the property as their home. This differs from the occupancy requirements that generally apply to a VA purchase loan.

Can closing costs be included in a VA IRRRL?

Certain allowable closing costs may be included in the new IRRRL rather than paid entirely out of pocket. Financing these costs increases the new loan balance, so the overall transaction should be evaluated carefully.

Is a VA Streamline Refinance always worth doing when rates fall?

No. A lower interest rate alone doesn't necessarily make refinancing beneficial. The new payment, closing costs, loan balance, loan term and how long you expect to keep the mortgage should all be considered.

How Veterans Can Benefit from the VA Loan Streamline Refinance (IRRRL)