How To Prepare For A VA Streamline Refinance
Posted on: February 20, 2020
The VA streamline refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is intended to help veterans lower their interest rate and monthly payments. Unlike the VA cash-out refinance, the IRRRL doesn’t have the same loan qualification requirements. This makes the preparation minimum and the qualification simple.
IRRRL eligibility requirements
Even though the IRRRL is generally easy to qualify for there are some requirements to be eligible. You likely won’t need your certificate of eligibility for a VA streamline refinance. Your lender will request a “prior loan validation” from the VA to prove your current VA loan status. You’ll also need to meet the following requirements:
You must have a current VA home loan.
The home you’re looking to refinance must have been purchased with a VA home loan. This is one of the requirements that separates the IRRRL from the VA cash-out refinance. While the VA cash-out refinance can be used by any eligible member regardless of what loan product they used to purchase their current home, VA streamline refinances are only eligible for those with a VA home loan.
You must have made on-time mortgage payments for the past year.
You may still be eligible if you have had no more than one late payment (30+ days) in the past 12 months. That said, if you made a late payment eight months ago, it would probably be best to wait four more months before applying to be safe.
Your must wait seven months before you refinance.
The VA doesn’t allow you to use a home loan to purchase a home and refinance a month later. The closing date of the new refinance loan must occur after both of the following events:
- It has been at least 210 days (about seven months) since you made your first payment on your current loan.
- You’ve made at least six full mortgage payments on your current VA home loan.
Your new mortgage payment must be lower than your previous one.
The VA requires that homeowners are reducing their mortgage interest rate and payment with a VA streamline refinance. They call this a net tangible benefit and they have specific requirements on how much lower based on the type of loan.
- Fixed-rate mortgage to fixed-rate mortgage. The new interest rate must have a rate that is not less than 0.50% less than the previous loan.
- Fixed-rate mortgage to an adjustable-rate mortgage. The new interest rate must have a rate that is not less than 2% than the previous loan. The lower rate can not come solely from discount points.
There are a few exceptions to the net tangible rule. A homeowner who has an adjustable-rate mortgage may still be eligible for an IRRRL even though their rate is increasing if they refinance into a fixed-rate mortgage. Or, a homeowner who is refinancing into a shorter term loan like a 30-year fixed to a 15-year fixed.
You must meet your lender’s credit score requirement.
The VA doesn’t require a credit check for IRRRLs, though most lenders will want to check your credit report. Even though the VA doesn’t set a minimum credit score, expect most lenders to require 620+ credit score to qualify.
It’s easier to qualify for a VA IRRRL.
The VA IRRRL is also called the VA streamline refinance for a reason. There’s not much to prepare or required from the veteran, especially when compared to VA purchase loans or VA cash-out refinances.
With a streamline refinance, homeowners can essentially skip some steps that other refinance loans may require. This, along with other benefits, are the primary reasons that veterans use the IRRRL. The benefits include:
- No documentation needed to verify your income (i.e. no pay stubs, W2s, or bank statements)
- No home appraisal is required
- All closing costs can be financed, meaning no out-of-pocket costs
- Required funding fee is lower than that for VA home purchase loans
- Underwater homes are eligible
Because every situation is different, some of these benefits may not apply to all homeowners. However, it’s safe for most VA homeowners to assume that they won’t need to provide much documentation and will save money on monthly payments in the process.
VA Refinance Rates
Mortgage interest rates continue to stay low. Veterans who have purchased a home with a VA home loan in the past few years could likely reduce their interest rate and monthly mortgage payment with a VA streamline refinance loan. VA refinance rates also continue to remain low. In fact, according to Ellie Mae’s January 2020 Origination Insight Report, interest rates for VA loans decreased to 3.64% on average. This is 0.39% lower than interest rates for conventional loans.
Read more: Current VA Refinance Rates
Should you use a VA streamline refinance?
The most important part of preparing for a streamline refinance is deciding if the program is right for you. It really comes down to your financial goals — if you’re looking to lower your interest rate and monthly mortgage payment, than it’s worth considering. If you’re looking to get cash however, the IRRRL isn’t for you. For that, you’ll need to consider a VA cash-out refinance.
It’s also important to note that with a refinance you don’t have to use the same lender that you did with your purchase loan. In fact, it’s recommended that you shop around with multiple lenders to ensure that you’re getting the best deal on your loan as other lenders may offer lower rates and closing costs.