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If your mortgage is guaranteed by the Department of Veterans Affairs, you may be able to lower your payments with a VA streamline refinance loan.
Also referred to as a VA interest rate reduction refinance loan, or VA IRRRL, a VA streamline refinance loan can help you either replace your existing VA loan with one that has a better interest rate or change from a variable-rate mortgage to a fixed-rate loan.
Read on to learn about the main features of a VA streamline refinance, as well as who’s eligible and what closing costs are associated with this type of loan. We’ll also look at factors to consider when trying to decide whether a VA streamline refinance is worth it.
- What is a VA streamline refinance mortgage?
- Who’s eligible for a VA streamline refinance?
- Are there closing costs with a VA streamline refinance?
- Is a VA IRRRL worth it?
- How to get a VA streamline refinance mortgage
- Next steps: Who has the best VA streamline refinance rates?
What is a VA streamline refinance mortgage?
If you have a mortgage that’s guaranteed by the VA, you may be able to refinance it with a VA streamline refinance. When you refinance a mortgage, you take out a new loan that ideally has a lower interest rate or better loan terms and use it to repay your existing mortgage. You then continue making monthly mortgage payments on the new loan.
Taking out a VA streamline refinance mortgage is usually simpler than the typical mortgage refinance process. You generally don’t have to submit credit information or get your property appraised. You also don’t need to apply for a new Certificate of Eligibility or show your existing certificate to prove that you qualify for a VA mortgage. And you usually don’t have to make a down payment or buy mortgage insurance. And while there are costs associated with taking out a VA streamline refinance loan (more on that later), they can be included in the new loan so you don’t have to pay anything out of pocket when you refinance.
These advantages mean that getting a VA IRRRL often requires less paperwork and may proceed more smoothly than other methods of refinancing. That said, if you’re behind on your existing VA-backed mortgage by 30 days or more, you’ll have to go through credit underwriting. And if the value of your loan exceeds the conforming loan limit for your county, you’ll need to make a down payment.
Who’s eligible for a VA streamline refinance?
To qualify for a VA streamline refinance mortgage, you must have an existing mortgage guaranteed by the VA.
To qualify for a VA-backed home loan, you must be currently serving in the military on active duty or a veteran. If you’re a veteran, you must meet requirements for length of service, which vary based on when you enlisted. You also must have received an honorable discharge.
Members of the Reserve or National Guard are eligible if they served for at least six years, were called to active duty for a period of 90 days or more, or were discharged because of a disability related to their service. Some surviving spouses of veterans are also eligible.
You must be living in the home you want to refinance to qualify for a VA streamline refinance loan — and you might qualify even if you don’t live in the house anymore. But some lenders, such as Rocket Mortgage, require you to currently use the home as your primary residence and won’t offer a VA IRRRL to refinance an investment property.
Are there closing costs with a VA streamline refinance?
VA streamline refinance loans come with some closing costs. First, there’s the VA funding fee. This is a one-time fee the government charges to help recoup the cost of offering loans with no down payments or monthly mortgage insurance. The amount of the fee is 0.5% of the loan amount. You can either pay the entire fee when you close on the loan, or you can roll it into your loan so it’s included in your monthly payments.
Some borrowers are exempt from the VA funding fee. For example, veterans who receive VA compensation for a disability related to their service, some surviving spouses of veterans who died while serving, and active-duty members of the military who have been awarded the purple heart are not charged this fee.
Other closing costs are decided by lenders, and they may be higher or lower depending on which lender you choose. You may have to pay an origination fee, which can be as much as 1% of your loan amount. And you may pay discount points, which are upfront fees a lender charges in exchange for lowering the interest rate on your loan.
Is a VA IRRRL worth it?
A VA IRRRL may be worth it for some homeowners but not for others. You may benefit from refinancing with this type of loan if you can get a lower interest rate, which might give you a more manageable monthly payment and reduce the total amount of interest you pay over the life of the loan. And if you currently have an adjustable-rate mortgage and want to switch to a fixed rate, you can do that and get more predictable payments with a VA streamline refinance loan.
But keep in mind that this type of loan has costs which could outweigh the savings from a lower interest rate. Compare your closing costs and loan fees with the amount you’ll save on interest to make sure you’ll benefit from refinancing.
You’ll also want to check that the fees and costs don’t cause you to owe more than the market value of your home. If you borrow more than your home is worth, the proceeds from selling your home in the future might not be enough to pay off the remaining balance on your mortgage.When is refinancing a mortgage worth it?
How to get a VA streamline refinance mortgage
Taking out a VA streamline refinance loan is usually a straightforward process.
- Check whether you qualify for this type of loan. Review the eligibility requirements and confirm that you have an existing VA-backed mortgage.
- Shop around for the best offer. You can get a VA streamline refinance loan from an approved mortgage company, bank or credit union. Ask these lenders for quotes. You can either give the lender your Certificate of Eligibility that you used to get your existing VA-backed loan, or the lender can access it electronically. The U.S. Department of Veterans Affairs and Consumer Financial Protection Bureau advises VA home loan shoppers to beware of suspicious offers that claim you’ll get unrealistically low interest rates, be awarded large amounts of cash back or have the option to skip a mortgage payment. These are warning signs that the loan you’re offered might be more expensive than advertised. Similarly, avoid lenders who use misleading sales tactics like disguising loan offers as bills or who try to persuade you to refinance right after you take out a VA-backed mortgage.
- Complete the application. Once you’ve compared offers and found a loan with terms and fees that you’re happy with, complete the application. Decide whether you want to pay closing costs upfront or to finance them.
- Finalize the loan. If you’re approved for the loan, sign the documents your lender provides to close on it.
Next steps: Who has the best VA streamline refinance rates?
Different lenders will likely offer you different rates, so it’s a good idea to get multiple quotes. Here are a few lenders that issue VA streamline refinance home loans.
- Freedom Mortgage — Freedom Mortgage is the largest VA lender by loan volume. This lender doesn’t ask to verify your income. But if your existing VA-backed mortgage wasn’t issued by Freedom Mortgage, you’ll need to allow the company to check your credit — though the lender says it may issue loans to homeowners who have credit scores below 580
- Veterans First Mortgage — Quotes are available online, but you’ll need to consent to receive automated calls and texts. Veterans First Mortgage says it offers “competitively low rates” but doesn’t specify APRs online.
- Veterans United Home Loans — Veterans United Home Loans is the third largest VA lender by loan volume. This lender considers lending to homeowners who no longer live in the home and usually doesn’t ask for an appraisal, but it does state that borrowers must not have fallen 30 days behind on the loan they’re seeking to refinance within the past year. As of May 21, 2021, Veterans United Home Loans advertised an APR of 2.894% on a 30-year VA streamline refinance within the conforming loan limit and a starting APR of 3.262% on a 30-year jumbo VA streamline refinance.