Since 1980, the VA has offered the Interest Rate Reduction Refinancing Loan (IRRRL) as a way for current VA homeowners to lower their interest rates with little or no out-of-pocket costs. It's also called a "Streamline Refinance" or a "VA to VA Loan."
A VA Streamline Refinance (IRRRL) allows you to refinance your current mortgage at a lower interest rate than you are currently paying. In fact, except when refinancing an existing VA guaranteed adjustable rate mortgage (ARM) to a fixed rate, the Streamline Refinance or IRRRL must result in a lower interest rate (when refinancing from an existing VA ARM loan to a fixed rate VA loan, the interest rate can increase).
The IRRRL is available to veterans who want to refinance their original VA Home Loan, and utilized their original eligibility when they purchased it.
"No Cost" Streamline Refinancing even lets veterans refinance VA mortgages and incur no out-of-pocket expenses. Your lender can pay your costs, in exchange for a higher interest rate. Or you can roll the closing costs into your new Streamline Refinance Loan. The Streamline may be done with "no money out of pocket" by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs (as long as the interest rate on the new loan is lower than the rate on the old loan…unless you are refinancing an ARM to a fixed rate mortgage).
A VA Streamline Refinance can be accomplished faster and with less documentation than a typical home refinance loan. No appraisal or credit underwriting is required by VA (however, your lender may require an appraisal and credit report). A certificate of eligibility is not required. Your lender may use an e-mail confirmation procedure for your IRRRL in lieu of a certificate of eligibility.
No lender is required to make you an IRRRL, however, any lender of your choice may process your application for you. Beware of lenders who contact you suggesting that they are the only lender authorized to offer IRRRLs; any lender may make offer an IRRRL. And while it might be the best place to start shopping for an IRRRL, you do not have to go to the lender you make your payments to now or to the lender from whom you originally obtained your VA Home Loan. In fact, veterans are strongly urged to contact several lenders. There may be big differences in the terms offered by various lenders that you'll want to know about.
Some lenders may say that VA requires certain closing costs to be charged and included in the loan. Not true; the only cost required by VA is a funding fee of one-half of one percent of the loan amount which may be paid in cash or included in the loan.
Remember: your IRRRL can be done only if you have already used your eligibility for a VA loan on the property you intend to refinance. It must be a VA to VA refinance, and it will reuse the VA Home Loan entitlement you used originally. You may have used your entitlement by obtaining a VA loan when you bought your house, or by substituting your eligibility for that of the seller, if you assumed the loan. If you have your Certificate of Eligibility, take it to the lender to show your prior use of your VA entitlement.
The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL, you need only certify that you previously occupied it.
The loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including funding fee and up to 2 discount points. You may also add up to $6,000 of energy efficiency improvements into the loan. Sometimes, adding all of these items into your loan can result in your owing more than the fair market value of your house; that will reduce the benefit of refinancing since your payment will not be lowered as much as it could be. In that case, keep in mind that you could have difficulty selling the house for enough to pay off your loan balance.
IRRRLs can be an opportunity to reduce the term of your loan from 30 years to 15 years. While this can save you a lot of money in interest over the life of the loan, if the reduction in the interest rate is not at least one percent (two percent is better), you may see a very large increase in your monthly payment... and that increase could be more than you can afford.
No loan other than the existing VA loan may be paid from the proceeds of an IRRRL. If you have a second mortgage, the holder must agree to subordinate that lien so that your new VA loan will be a first mortgage.
A QUICK OVERVIEW
Talk to your lender about the best refinancing options available through your VA Home Loan program. Whatever you need, the VA Home Loan program is here to serve you.
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