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How a VA streamline refinance (VA IRRRL) works

Yahoo Personal Finance· Getty Images
7 min read

As a homeowner with a VA loan, you may have seen the acronym “IRRRL” (pronounced “Earl”), especially if you’re considering refinancing your mortgage. But do you know what it means?

We’ll explain what a VA IRRRL is, how it works, and the pros and cons of this type of home refinance option. That way, you can decide if refinancing with a VA IRRRL is right for you.

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VA IRRRL is short for “VA interest rate reduction refinance loan,” a program also known as a VA streamline refinance. You refinance your existing VA loan into a new one with a lower mortgage rate.

A better interest rate will give you lower monthly payments, assuming you keep the same (or longer) loan term. You can also use an IRRRL to convert your adjustable-rate mortgage into a fixed-rate mortgage, which means your monthly payment will remain stable for the remainder of the loan.

A VA IRRRL is known as a “streamline” refinance for a reason: It’s typically fast and easy to obtain.

“There’s no appraisal, no [VA-required] credit check, and no income verification. Remember all the documentation you had to show when you got your home loan? You don’t need it for an IRRRL,” said Adam Spigelman, senior vice president of portfolio retention at Planet Home Lending, via email.

Dig deeper: Adjustable-rate vs. fixed-rate mortgages

Because a VA IRRRL has a much less complex underwriting process, “A lender can close these [refinances] in as quickly as 10 days,” said Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate, via email.

With a VA streamline refinance, you will still have to pay some fees, such as a 0.50% VA funding fee and any costs imposed by your mortgage lender (these vary by company and can include up to two discount points). You may be able to avoid paying the funding fee if you meet one of the VA funding fee exemptions, such as qualifying for VA disability services.

An IRRRL also gives you the option to roll your closing costs into the new mortgage. That way, you don’t need to put any money down.

Your new mortgage loan term can be as long as your original loan term, plus 10 years, as long as the new term doesn’t exceed 30 years and 32 days.

Read more: A guide to USDA streamlined refinance loans

Even though there are fewer hoops to jump through with a VA streamline refinance, you still have to meet a list of requirements to be eligible for one. You must:

  • Have a VA mortgage and use the IRRRL to refinance the debt.

  • Certify that you presently or used to live in the residence financed by the VA mortgage.

  • Be current on your home loan payments (though exceptions exist if you can prove the issue causing the delinquency has been resolved and you can make the new loan payment).

  • Wait 210+ days after making your first VA mortgage payment and make at least six months of consecutive payments.

Learn more: How soon can you refinance a mortgage after buying a home?

Note: If you have a second mortgage on the home, such as a HELOC or home equity loan, your lender for the second mortgage must agree to make your VA IRRRL the primary lien on the property.

Your new loan is also required to benefit you financially. It must have a lower interest rate unless you’re refinancing from an adjustable-rate to a fixed-rate mortgage. The new monthly payment usually must be less than the old one unless you meet an exception, such as refinancing into a shorter term. Finally, after paying your closing costs, you need to break even within three years.

“One of the things I love about VA IRRRLs is that one of the stipulations to getting approved is the borrower has to be able to recoup the cost of the refinance within 36 months of closing. That guideline is great because it helps prevent people from refinancing when it doesn't make much financial sense,” said Nate Fain, director of mortgage sales at OneReal Mortgage, via email.

The above are criteria established by the VA. Your VA loan lender may have other requirements you need to meet to qualify.

Read more: 5 ways to prepare to refinance your mortgage

“You can work with any mortgage lender who does VA loans to get an IRRRL. It does not have to be with the lender who did your original mortgage, so make sure you are reading reviews of loan officers, comparing interest rates and fees, and looking for a lender who can close fast,” said Beeston.

Even though you don’t have to refinance with your original lender, there may be benefits to doing so. “Chances are, they have a lot of the paperwork needed on file already, and they may even offer you a discount for using them again,” said Fain.

“Once you have selected your lender, you will fill out the mortgage application. The lender will pull credit and discuss locking the interest rate. Within three days of filling out the application, you will receive loan disclosures which will go over the loan you have selected and its terms. Approximately seven days after you sign [the disclosures], you will sign your final loan documents and close,” said Beeston.

As part of the process, you may need to provide your lender with your certificate of eligibility (COE). Fain also said the refinancing lender will probably order a title report, so have the name of your title company or attorney ready to give to your lender.

VA IRRRLs have several advantages. They’re relatively easy to qualify for, even if your credit has worsened since you closed on your original home loan. They close fast thanks to a limited underwriting process and no mandatory home appraisal, and getting one always improves your financial situation in one way or another.

However, [while] “the IRRRL is generally the best option when you just want a lower rate and lower payment, it’s limited to just that. If you need cash out or want to remove a borrower for reasons other than death or divorce, a fully documented VA refinance is often the best path,” said Spigelman.

In these cases, you are better off getting a VA cash-out refinance or maybe even a regular rate-and-term refinance into a conventional loan.

Dig deeper: How to refinance your mortgage with bad credit

If current mortgage rates have decreased since you bought your home, it may be financially worth it to refinance your VA home loan now. But there are more factors to consider than just interest rates.

“It is always worth touching base with a lender to see where rates are and if you could benefit now [from a VA IRRRL] or if you should put together a game plan for later,” said Beeston. “Watch out for any lender that says a VA IRRRL will not work, but you can do a cash-out [refinance]. IRRRLs are designed to protect veterans from high fees that do not make sense, but cash-out VA refinances do not have the same protections in place.”

A VA IRRRL can be a good idea if VA mortgage interest rates have dropped since you closed on your home. Getting an IRRRL can also be wise if you want to convert your adjustable-rate mortgage into a fixed-rate loan.

Generally, you can’t take cash out with a VA IRRRL. However, you may be able to get reimbursed for up to $6,000 worth of property upgrades to make energy efficiency improvements. To qualify for the reimbursement, you must complete those upgrades within 90 days before closing on your IRRRL.

An IRRRL generally results in a VA funding fee of 0.50% of your new mortgage. You may also have to pay lender fees to close the loan, but you can typically roll them into your financing, limiting the money you need up-front. Be sure to weigh the pros and cons of the no-closing-cost refinance approach, though. Yes, you’ll save money in the short term, but you’ll add the amount to your mortgage principal and pay interest on that higher balance over the years.

No, getting a VA IRRRL will have no impact on your entitlement.

This article was edited by Laura Grace Tarpley