VA Streamline Refinance or IRRRL: A Fast Way to a Better Mortgage

A VA streamline refinance, or IRRRL, is a simplified loan with relaxed qualifications for service members and veterans.
Managing Your Mortgage, Mortgages
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VA IRRRL

A VA IRRRL is used to refinance one VA mortgage into another. It is an improvement on your old VA loan. With it, you get a lower rate, a lower payment, or both. You can also move from an adjustable-rate loan to a fixed-rate loan.

What is a VA IRRRL?

A VA Interest Rate Reduction Refinance Loan — or IRRRL (pronounced “Earl”) — is often called a “VA streamline refinance” because the lending approval process is greatly simplified. An IRRRL doesn’t require an appraisal or go through the typical VA lender underwriting process. That saves a lot of time, paperwork and fees.

How does a VA IRRRL work?

Lenders love IRRRLs. Borrowers do too, because they are much easier to navigate than regular VA loans.

You’ll still need to deal with a Department of Veterans Affairs-approved lender, and VA county-based loan limits still apply. And the VA is adamant that a refinance offers a real financial benefit. That means you’ll need to lower your interest rate or reduce your monthly payment.

» MORE: Notify me when I can save by refinancing

Can you get a cash-out VA streamline refinance?

The answer is no, but there’s an exception: Up to $6,000 in cash can be taken out from your IRRRL for energy-efficient improvements. A lender may require an energy audit of your home to prove the upgrades will provide a real return on investment.

Other than that, there are no other cash-out options on an IRRRL. Your closing costs can be rolled into your loan balance or priced into your interest rate, just like any other VA home loan.

» MORE: Best lenders for VA loans

IRRRL: Go from ARM to fixed

You can use a VA streamline refi to trade your adjustable-rate mortgage for a fixed-rate loan. That way you’ll lock in your rate and not have to worry about higher mortgage rates down the road.

Moving from an ARM to a fixed-rate loan is the one instance when the VA will allow you to increase your mortgage interest rate on a refi.

If you want to move to a shorter term — say from a 30-year to a 15-year mortgage — you can do that, too. You’ll save a lot of interest over the life of the loan, but your payment will be higher. The best VA lenders will work with you to make sure that any increase in your monthly mortgage payment will still work within your estimated living expenses.

VA IRRRL qualifications and fees

The looser restrictions don’t stop there: You don’t even have to live in the home to qualify for a VA IRRRL. That means you can use it to refinance a house you’re currently renting out. You’ll need to certify that you previously lived there.

One thing you can’t avoid: the VA funding fee. For most borrowers, that will mean a 0.5% charge.

You won’t even need a new Certificate of Eligibility for an IRRRL.

One thing you can’t avoid: the VA funding fee. For most borrowers, that will mean a 0.5% charge. The fee is waived for some VA borrowers, including those with service-connected disabilities and certain surviving spouses.

It’s always a good idea to shop more than one lender, even for something as simple as a VA IRRRL. That’s because interest rates and closing costs can vary from one lender to another, and some lenders “overlay” certain loan requirements that others don’t.

IRRRL churning

Since 2012, the Consumer Financial Protection Bureau has tracked the number of complaints reported by veterans regarding mortgage refinance offers.

Prospective VA borrowers are frequently barraged with direct mail solicitations that look important, time-critical and official. And it’s often difficult to determine specific loan terms and conditions from these advertisements, the CFPB says.

“Overall, in their complaints to us, veterans report that the solicitations and advertisements they receive are often misleading,” the CFPB said in a November 2016 notice. “Many complain that lenders fail to deliver on the promises made during the application process. And the quick underwriting often results in the borrower’s failure to clearly understand important loan details, like how the new escrow account will be set up.”

With more lax underwriting and document requirements, the consumer advocacy agency says many lenders are happy to do VA IRRRL loans — so much so that some lenders would encourage qualified VA borrowers to refinance frequently, sometimes just months after their last refi. This sales process is called “churning.”

“This may lead some lenders to aggressively pursue veterans with offers to refinance their VA mortgage — but those offers may have hidden features or not be in the veteran’s best interest financially,” the CFPB says.

It’s important to understand any loan offer you receive and never rush to make a decision — no matter how great the deal seems.

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