VA Streamline Refinance | Pros & Cons 2021
The VA Streamline Refinance — also known as a VA Interest Rate Reduction Refinance Loan (IRRRL) — can lower your VA mortgage’s interest rate quickly and inexpensively.
With an IRRRL, it’s possible to refinance without income or bank account verification, and without an appraisal. There’s no credit score requirement either.
This means you can take advantage of historically low-interest rates quickly, easily and affordably.Click here to see if you're eligible for a VA Streamline Refinance (Oct 26th, 2021)
In this article:
- What is a VA streamline refinance loan?
- VA streamline refinance rates
- VA streamline refinance eligibility
- VA streamline refinance guidelines
- Pros and cons of a VA streamline refinance
- Can you take cash out?
- Other VA streamline refinance questions
- Our recommended refinance lenders
What is a VA streamline refinance loan?
The VA Streamline Refinance loan is available to active-duty service members, veterans, and their families who already have a VA mortgage loan. It’s intended to help them lower their mortgage rate and monthly payments.
This refinance option eliminates many of the hurdles that hold up applicants on other types of refinances.
The VA Streamline is much easier to get because it doesn’t require the documentation or appraisal needs that other refinance programs do, including:
- No pay stubs or W2s are required
- No bank statements are required
- No home appraisal is required, so no loan-to-value (LTV) limitation
- Underwater homes are eligible
- Funding fee is lower than that for VA purchase loans
- Closing costs can be wrapped into the new loan, which means little to no out-of-pocket expenses
VA streamline refinance rates in 2021
VA Streamline Refinance rates remain low this year. According to Ellie Mae’s June 2021 ICE Report, interest rates for VA loans were 2.92% on average — this is more than a quarter of a percentage point lower than average 30-year conventional loan rates.
Read more: Current VA Refinance Rates
With rates continuing to stay low, veterans who have purchased a home with a VA home loan in the past few years should check to see if a VA IRRRL can reduce their interest rate and monthly mortgage payment.
The amount of money you can save over the life of the loan depends on your unique personal finances — talk with multiple lenders to see who offers the best deal for you.Click here for a quick VA streamline rate quote (Oct 26th, 2021)
Benefits of a VA Streamline Refinance
The VA IRRRL program exists to help VA loan holders lower their interest rates, or save money in other ways, without having to go through a complex and costly refi.
The program’s benefits include:
- Locking in a lower mortgage rate
- Getting lower monthly payments
- Avoiding the credit check and appraisal
- Saving on closing costs compared to other refi programs
- Extending a loan’s term up to 10 years to lower payments
- Accessing up to $6,000 to make energy efficient home improvements
- A quick turnaround time compared to many other loans
- A chance to shorten the loan term which can save money long-term
- No ongoing private mortgage insurance (PMI) like conventional loans
VA streamline refinance eligibility guidelines
If you’re interested in a VA Streamline Refinance (IRRRL) you must currently have a VA home loan. Most veterans, including National Guard and Reservists, can qualify. (Your mortgage lender will pull a “prior loan validation” from the VA’s website to prove your current VA loan status.)
There are some additional eligibility requirements related to your type and length of military service.
In addition to those minimum service requirements, you’ll need to meet the following criteria to be eligible for a VA Streamline Refinance loan:
- Payment history: You’ll need a six-month history of on-time payments
- Waiting period: The IRRRL program requires a 210-day waiting period since you closed your existing loan
- Credit score: Most VA lenders will not check your credit score
- Net tangible benefit: Your new loan has to do something your old loan couldn’t do; for example, reducing your interest rate and monthly mortgage payment or switching from an adjustable-rate mortgage to a fixed-rate mortgage
Some of these requirements aren’t as simple as they seem on the surface, so let’s take a closer look at each one.
A history of on-time payments
You must have made on-time payments on your existing VA mortgage over the past six months with no more than one payment that was 30+ days late in the past 12 months. If you did have a late payment, say, eight months ago, you should probably wait four more months before applying.
A waiting period
The closing date of the new VA Streamline Refinance loan must occur after both of the following events:
- It has been at least 210 days (about seven months) since you made the first payment on your current VA loan.
- You have made at least six full payments on the VA home loan you’re looking to refinance.
Credit score requirements
The Department of Veterans Affairs does not require a credit check for a VA Streamline Refinance because you’ve already been approved for a loan.
That said, most lenders require a credit report to prove that you’re still financially stable and have a good credit history. Expect most lenders to require a minimum credit score between 600 to 620 to qualify even though the VA itself does not set a minimum.
No new COE required
You shouldn’t need to show your Certificate of Eligibility (COE) for a streamline refi. Most lenders request a prior loan validation request from the VA in lieu of a COE.
Why? Because you can get a VA Streamline Refinance only when you already have a VA loan. Since you have a VA loan, you’ve already shown you’re eligible for the VA borrowing benefit.
Net tangible benefit
A VA Streamline Refinance must improve a veteran’s financial situation. Basically, the new monthly mortgage payments must be lower than the current payments. The VA also specifies how much lower by loan type:
- If you’re refinancing a current VA fixed-rate loan to another fixed-rate mortgage, your new fixed rate must be at least 0.5% lower than your existing loan’s rate.
- If you’re refinancing a current VA fixed-rate loan into an adjustable-rate (ARM), you’ll need to lower your rate by at least 2%, and the lower interest rate may also not come solely from discount points.
To prove the net tangible benefit of the refinance, your lender provides a form stating the interest rate and payment of your current loan compared to the rate and payment of the new loan.
Your mortgage lender will also show how long it’ll take the refinance to pay for itself. For example, if the refinance costs you $3,000 in closing costs, but you’re saving $300 per month, then you’ll make back the cost of the refinance in 10 months.
In the rare case that the new mortgage payment increases by 20% or more, the lender may ask for full income documentation.
Exceptions to the net tangible benefit requirement
A VA streamline refi won’t always require borrowers to show a net tangible benefit. You can skip this requirement if:
- You’re refinancing out of an ARM: Fixed-rate mortgages often have higher interest rates than adjustable-rate mortgages (ARMs). But with an ARM, your payment could go up later. Locking in a fixed rate through a VA streamline refi may cost more at first, but it could also save a lot later in the loan’s term
- You’re getting a shorter loan term: Trading a 30-year loan for a 15-year loan can save a lot in interest over the life of your loan. But the shorter term will likely increase your monthly payment
- You’re financing energy efficient home improvements: The IRRRL program lets homeowners get up to $6,000 in cash back to make energy efficient home improvements which will save money over time
The VA makes these exceptions because they let homeowners create ways to save more money in the future, throughout the life of the loan, even if they cost more up front.
You do not need your certificate of eligibility (COE) for a streamline refinance. Most lenders request a prior loan validation request from the VA in lieu of a COE.
More VA streamline refi guidelines
Veterans, service members, and surviving spouses of veterans who buy homes with VA loans have to follow the VA’s lending guidelines.
The VA streamline refi follows a lot of the same rules, and it has a few of its own unique rules and regulations.
The home must be a primary residence
You are more likely to qualify for a VA Streamline Refinance if you currently live in the home. If you don’t, you must certify that you previously occupied the home.
For example, if you lived in the home, then relocated and rented it out, then you may still qualify for a VA streamline refi.
VA Streamline Refinance funding fee
VA loans do not require ongoing mortgage insurance like most other mortgage types, but they do require an upfront VA funding fee.
For the VA IRRRL, the funding fee is usually 0.50% of the new loan amount. This is much less than the 2.3% to 3.6% first-time borrowers or cash-out refi applicants pay upfront.
The funding fee can be waived for veterans who are disabled because of service-related lenders.
The VA Streamline Refinance is not viewed as a subsequent use of your VA home loan benefit. You will not incur the 3.6% subsequent use fee if you take advantage of the VA IRRRL program.
Use of entitlement
A VA Streamline Refinance will not change your current level of entitlement for using the VA home loan program. Even if your loan amount increases some — because you’re making energy-efficient home improvements, for example — your entitlement use will remain the same.
You may decrease your loan term with a VA Streamline Refinance — say from 30 years to 15 years. In this case, it’s OK if your monthly payment increases.
You can also do the opposite: refinance a 15-year loan into a longer term loan. Keep in mind your loan term can never increase more than 10 years. If you currently have a 15-year term, the longest loan you can refinance into will be 25 years.
In the rare case that the new mortgage payment increases by 20% or more, the lender may ask for full income documentation.
How to apply for a VA Streamline Refinance
The Department of Veterans Affairs runs the VA loan program and insures VA loans, but private lenders provide these loans to veterans.
If you meet the VA IRRRL’s eligibility requirements, which we’ll discuss in detail below, your first step is to shop for lenders.
Here’s a quick three-step guide to getting a VA Streamline Refinance:
Step 1: Shop VA lenders
Not all lenders offer the same rates on VA loans, and some charge higher loan origination fees than others.
So before committing to a mortgage lender, shop around between at least three VA-authorized lenders. Your existing loan lender may or may not have the best deal for you.
Step 2: Apply and share information
Once you’ve chosen a lender, it’s time to apply for the streamline refinance. You should be assigned a loan officer to help guide you through the application process.
Be ready to answer questions about your existing mortgage loan. You shouldn’t need to consent to a credit check, but you should know your current loan’s interest rate and loan term so you can gauge how much the new loan will save you.
You also shouldn’t need to provide a Certificate of Eligibility since you already have a VA loan.
Step 3: Follow through until closing day
It’s time to address closing costs. It’s possible to roll them into your new loan’s balance. Or, ask your loan officer about using lender credits, in exchange for a slightly higher interest rate, to cover closing costs.
Meanwhile, if your existing loan’s payment comes due before you close on the new loan, make the payment.
Finally, your lender will schedule a meeting to sign closing documents at your convenience.
How much are closing costs on a VA Streamline Refi?
Closing costs for a VA IRRRL tend to be about 2% to 3% of the new loan’s amount. If you’re refinancing a $150,000 mortgage, you can expect $3,000 to $4,500 in closing costs.
Closing costs include, but are not limited, to:
- Lender’s origination fee: Up to 1% of the loan amount
- VA funding fee: 0.5% of the loan amount
- Prepaid taxes and insurance: Varies based on timing of closing day
- Recording fees: Usually a flat fee to document your new new loan
- Title fee: Another flat fee to keep the transaction legal
What if you can’t come up with the cash to cover this expense?
Often, closing costs can be wrapped into the new loan. Or, the lender can give you a higher interest rate to pay your closing costs — sometimes even enough to cover the VA funding fee.
Instead of adding the closing costs to the loan amount, the lender pays them for you by using the excess profit from the loan. For example, if interest rates are 3.0%, your lender may give you a 3.25% rate and pay all of your closing costs. You still get a great interest rate and don’t add much principal to the loan balance.
In general, the rules for VA closing costs are the same whether it’s a purchase loan or streamline refinance. The only exception is that a veteran may not finance more than two discount points into the new loan.
You also cannot get cash back at closing with a VA streamline — this refinance option is meant to pay off the existing loan plus closing costs. The exception: If a veteran prepays for energy-efficient home improvements and needs to be reimbursed for actual costs.
Closing costs vary greatly from lender to lender. You should shop around with multiple lenders to find the best interest rate and closing cost combination for you.Check VA streamline refinance rates here (Oct 26th, 2021)
Pros and cons of a VA Streamline Refinance
Pros of a VA Streamline Refinance
- Less documentation requirements — no credit report or COE
- No appraisal required
- Can apply to non-owner occupied properties
- Closing costs can be added to the loan, meaning no out-of-pocket costs
- May borrow up to $6,000 cash for energy-efficiency improvements
Cons of a VA Streamline Refinance
- Must already have a VA loan to be eligible
- A lower interest rate and monthly payment must occur (unless refinancing from an ARM to a fixed-rate loan)
- A 0.50% funding fee is added to new loan amount (though, it’s much less than the VA cash-out)
VA Streamline Refinance vs VA Cash-out Refinance
There are two VA refinance loans — the VA Streamline Refinance and the VA Cash-out Refinance.
Like the name suggests, with the VA cash-out loan you can take cash out using your home equity.
The VA cash-out requires a lot more documentation because it could increase your loan balance significantly. You’ll need a Certificate of Eligibility, for example, to show your level of entitlement for the higher loan amount.
The cash-out refi’s higher loan amount generates your cash back which you could use on home improvements, debt consolidation, or even to make a down payment on another real estate property.
Another difference is that the VA cash-out refinance can be used to switch from a non-VA loan into a VA loan.
For instance, if you currently have an FHA loan or conventional loan, but you’re VA-eligible, you could use the VA cash-out refi to refinance into a VA mortgage — with or without cash back at closing. The VA Streamline, on the other hand, requires the original mortgage to be a VA loan.
In addition, the VA Streamline Refinance does not allow you to get cash back except for up to $6,000 for energy efficient home improvements such as new windows, insulation, or a modern HVAC system.
The streamline refinance is faster, easier to get, and simpler.Get a personalized rate quote here (Oct 26th, 2021)
VA Streamline Refinance FAQs
Can I refinance my home if it’s underwater?
Yes. The VA Streamline Refinance loan does not require an appraisal, therefore no value is established for the property. The basis for the loan is the existing VA loan, not the current value of the property.
Can I add or remove a borrower from the mortgage with a VA streamline?
In general, the veteran who was eligible for the original loan must remain on the loan. But, there are some cases in which borrowers may be added or removed from the original loan. For example, if a spouse and veteran are on the existing loan, and the veteran passes away, then the surviving spouse may be able to refinance with a VA streamline without the eligible veteran.
What if I have a second mortgage?
Second mortgages on VA loans aren’t common — VA loans do not require a down payment, so not enough home equity exists to obtain a second mortgage. In the rare case that there is a second mortgage, the new VA streamline loan cannot pay it off. (A VA cash-out refinance loan can accomplish this, though.)
Can I skip a mortgage payment by getting a VA streamline?
No, payments cannot be skipped. Depending on the closing date of the new loan, it may appear that a payment was missed. In reality, the previous or subsequent month’s interest was wrapped into the new loan. Sometimes, lenders falsely market this as a “skipped” payment — however, the VA does not condone this practice.
Can I refinance my VA loan with a new conventional loan?
Yes, but you must have enough equity and meet other loan qualifications for conventional loans. If you have 20% or more equity in your home, then it’s possible to open a new conventional mortgage to refinance your current VA loan. A conventional loan requires an appraisal and full income, asset, and credit underwriting, though.
Can I use a VA Streamline to refinance another type of loan?
No. VA streamlines are intended for VA-to-VA refinances only. If you have a conventional, FHA, USDA, or other type of loan, you could possibly use a VA cash-out refinance. You would need an appraisal, plus income, asset, and credit documentation to qualify. And, of course, you’d need to be a service member or veteran to qualify.
Should I apply for a VA streamline with my current lender?
It is not required to use your original lender or current mortgage servicer for your VA Streamline Refinance. You can use any VA-approved lender. It’s best to check with a few lenders to compare the interest rates and fees you qualify for — it’ll ensure you’re getting the best deal for your situation.
Are there closing costs with a VA Streamline Refinance?
Yes, but your closing costs for a VA Streamline Refinance should be more affordable than most other loans’ closing costs. That’s because streamline refinancing does not require a new appraisal, and the VA funding fee will be only 0.5%. It’s possible to roll these costs into the new loan’s balance.
How much does a VA Streamline Refinance cost?
Closing costs on a VA Streamline Refinance usually range from 2% to 3% of the new loan’s amount. For a $150,000 home loan, this would come out to $3,000 to $4,500. But if the new loan saves you $150 a month through a lower monthly payment, you’d break even in 20 to 30 months. After that, you’d start saving money for the remaining life of the loan.
Does VA Streamline Refinance require an appraisal?
The VA IRRRL program does not need a new appraisal of your home’s value. It’ll base your home’s value on your existing loan.
How long does a VA Streamline Refinance take?
Because of its simplicity, your VA IRRRL could close in about a month, especially if you meet all of the program’s eligibility guidelines.
Is a VA Streamline Refinance worth it?
Yes. If your new loan can save you money every month — or if you can save long-term by shortening your loan term or using the loan program to finance energy-efficient home improvements — the costs of a VA Streamline Refinance can be worthwhile.
What is the best veteran refinance program?
The best refinance program is the one that accomplishes your specific goal. If you want to save money by locking in a lower interest rate but do not plan to cash out any home equity, the VA IRRRL program may be your best bet.
Can I refinance my VA loan after 6 months?
If you’ve already made six consecutive monthly payments on your existing VA loan, you can probably refinance with an IRRRL. Depending on the way the calendar falls, you may have to wait a few more weeks; there’s a 210-day waiting period from the date of your first payment before you can use this loan program.Complete a short online form to get a rate quote and see how much you can save (Oct 26th, 2021)