The VA Streamline refinance, otherwise known as the Interest Rate Reduction Refinance Loan, helps veteran homeowners refinance into a loan with a lower payment. The program is simple, affordable, and successful at helping veterans get the most out of their mortgage.
The VA streamline refinance is one of the last programs on the market that doesn’t require verification of income, assets, or the value of your home. You can even have less than perfect credit and still qualify for this program.
How the VA Streamline Refinance Works
The VA IRRRL program helps veterans secure a ‘better’ mortgage. Whether that means a lower interest rate, shorter term, or less risky loan program, it may qualify you for the VA streamline program. It allows veterans to reduce their monthly payment or get out of a risky loan, such as an ARM quickly.
Veterans need to verify one major factor when applying for the VA IRRRL program – their mortgage payment history. The VA requires veterans to have an on-time mortgage payment history for the last 12 months. They do allow an exception for one 30-day late payment if you have held your current VA loan for at least 12 months, but this is up to lender discretion.
Veterans also must prove that there is a net tangible benefit for refinancing. In other words, there needs to be an adequate reason for you to refinance. The VA does this to prevent veterans from refinancing when it doesn’t make sense to do so.
The mortgage payment history and the net tangible benefit are all the VA requires of veterans. The remaining qualifying factors can be used from your original VA loan. In other words, you don’t need to verify the following when applying for the VA streamline loan:
You can also wrap your closing costs and funding fee into the loan, but you cannot take cash out of the home’s equity with this program.
Unlike the VA purchase loan, you don’t have to prove owner-occupancy with the VA streamline loan. You must prove that you lived in the property as your primary residence up until you applied for the VA streamline refinance. But, some lenders do still require that you live in the home when you refinance.
Exceptions are often granted for those veterans that had to move out of their home because they were relocated or they outgrew their original home due to a growing family. Some veterans keep the home and rent it out to supplement their income.
The VA Funding Fee
Just as you paid a VA funding fee for the VA purchase loan, you’ll pay it again with the VA IRRRL. This time, though, you will pay only 0.5% of the loan amount for the funding fee. Compared to the standard 2.15% for active military members and veterans, the funding fee this time around is much cheaper.
You do have the option to wrap the funding fee into your VA streamline loan if you don’t have the cash to pay it at the closing. This fee goes directly to the VA and helps them continue to guaranty loans for veterans.
If you are a disabled veteran as a result of your service and your disability is documented by the VA, you may be able to get the fee waived.
The Benefits of the VA Streamline Refinance
The VA streamline refinance provides veterans with several benefits including:
- You don’t have to pay for an appraisal
- You can be underwater on your mortgage and still qualify for the refinance
- You don’t have to verify your income
- You only have to verify assets for any money you must bring to the closing
- Lenders don’t have to pull your credit score
- You don’t need another Certificate of Eligibility
- You can come to the closing table with no money and still refinance
Do you need remaining VA entitlement to use the VA streamline refinance?
You do not use or need any new entitlement for the VA streamline refinance. The VA simply reuses the entitlement used for your original VA purchase loan. Any remaining entitlement you had when you bought the home remains in place after the refinance.
Do all lenders have the same requirements for the VA streamline refinance?
Just like the VA purchase loan, VA lenders can have their own rules for the VA IRRRL program. They must follow the VA’s minimum requirements, but lenders can add their own rules to it. This may mean that some lenders will pull your credit or verify your income. You can always shop around to find lenders with more flexible guidelines if this is an issue for you.
Can you refinance into a higher payment with the VA streamline refinance?
Yes, in some cases you can take on a higher payment and still qualify for the VA streamline refinance. This often occurs when veterans refinance from an ARM to a fixed rate loan or when refinancing from a 30-year term to a 15-year term. As long as the payment doesn’t increase more than 20% from the original payment, you may still qualify for the IRRRL program.
Can you use the VA streamline refinance to pay off a 2nd mortgage?
If you have enough equity that you were able to secure a 2nd mortgage after your VA loan, you may not include it in the VA streamline refinance. You have two options – use the VA cash-out refinance and pay off the 2nd mortgage or ask the lender holding the 2nd mortgage to subordinate the loan.
Do you have to use your current VA lender for the refinance?
No, you are free to use any lender you want for the VA streamline refinance. The only requirement is that you use a VA approved lender. In fact, it’s usually a good idea to shop around to get the best rate and term on your loan.
Can you refinance an FHA loan into a VA streamline refinance?
No, you may only refinance a current VA loan with the VA streamline refinance. If you have any other type of loan and are a veteran, you can refinance into a VA loan, but only as a cash-out refinance.