A VA Streamline Refinance is also known as an Interest Rate Reduction Refinance Loan, or IRRRL, because it is designed to help homeowners lower their mortgage rate quickly and easily. This special refinance type is available to homeowners who currently have a VA home loan.
VA Streamline: An Easier Approval Process
The term “streamline” describes this loan product well. It requires much less documentation than a standard refinance. It’s the perfect way for current and former US military veterans to save money on their monthly mortgage payment without a lot of time and paperwork. A short list of VA streamline advantages are as follows.
- No income documentation is required.
- No bank statements or other asset documentation required.
- No appraisal required.
- Lenient credit score minimums.
- You can roll all closing costs into the new loan, eliminating out-of-pocket expenses.
- You can finance energy efficiency improvements into the new loan.
As far as refinance programs, there is really no other loan product that is quite as easy as this one.
How Can I Use a VA Streamline Refinance?
When current mortgage interest rates are low, it’s often a good idea to refinance. A refinance is simply a new loan that pays off the existing loan. The new loan has a lower rate or otherwise improves the homeowner’s situation.
The Veteran’s Administration developed this refinance program in 1980 to help our nation’s veterans get a lower mortgage payment with reduced hassle, time, and expense.
A VA streamline refinance allows the borrower to:
- Lower their rate.
- Reduce their monthly payment.
- Convert an adjustable rate loan into a fixed rate.
- Finance energy-efficient repairs.
- Shorten or lengthen the loan term (e.g. 15 year to 25 year, or 30 year to 15 year)
The biggest advantage of a VA streamline over other refinance programs is that no income or asset documentation is required, nor is an appraisal. Underwater homes are eligible, because value of the home is not considered.
VA Streamline Rates
Mortgage rates are incredibly low right now. What’s even better, VA loan rates are much lower than even “standard” rates published by Fannie Mae and Freddie Mac. According to a recent report by mortgage software company Ellie Mae, VA rates averaged 0.41% lower than conventional Fannie/Freddie rates.
That means VA loan holders have access to very low mortgage payments compared to those without a VA loan. Why are rates so low for VA? These loans are heavily backed by the federal government. Lenders view these loans as low risk, and pass the savings on to the borrower.
VA Streamline Requirements
VA to VA. The VA streamline program is available to refinance existing VA home loans. The borrower may not use the program if they have an existing FHA, USDA, or Fannie Mae/Freddie Mac loan. The VA streamline is strictly a VA-to-VA program. If your loan is not VA backed, see check out the FHA Streamline Refinance and Conventional Refinance. If you have another loan type, but want a new VA loan, consider a VA cash out loan. Click here to compare the VA streamline and VA cash out loan programs.
Reduction in Payment. To qualify for the VA streamline program, the monthly payment on the new VA streamline loan must be lower than the previous payment.
ARM to Fixed. There is an exception to the “reduction in payment” rule when refinancing from an adjustable or hybrid loan to a fixed rate. Going from an ARM to a fixed rate often increases the payment. However, this is allowed since the homeowner receives a more stable loan product.
Occupancy. The borrower must certify that the property is either currently or previously occupied as a primary residence. In some cases, the veteran must move out of the home due to PCS orders or other circumstances. In these cases, a VA streamline may still be available. Click here to check VA streamline rates in your area.
VA Loan Payment History. To qualify for the VA streamline loan, there can be no more than one payment in the previous twelve months that was more than 30 days past due. If you do have a 30-day late mortgage payment, you’ll have to wait until you have built a clean 12-month history.
No Cash Out. The VA streamline loan does not allow the borrower to take out a bigger loan they they currently owe in order to receive cash at closing. However, the VA cash out refinance does allow it.
Cash Needed to Close a VA Streamline. In most cases all closing costs can be rolled into the new loan, so there is little or no out-of-pocket expense. Ask your lender for a lender credit for all or part of the closing costs. This can reduce the amount of the new loan.
Appraisal.The VA does not require an appraisal, but some lenders will require one. If your home is underwater (i.e. you have negative equity), it’s best to find a lender that does not require an appraisal. Find a lender that does not require an appraisal here.
Minimum Credit Score for a VA Streamline. VA streamline refinance guidelines say no credit report is required. However, most or all lenders will require a credit report to prove you are in good standing on your VA mortgage and to prove sufficient credit history. While the VA does not set a minimum credit score, most lenders require between 600-620 to qualify.
Questions and Answers about the VA Streamline Loan Program
I have a 5/1 ARM loan, can I use the VA streamline loan program? Yes. A 5/1 loan is a hybrid loan and is considered an adjustable rate mortgage. Other hybrids include 3/1, 7/1 or even 10/1 where the interest rate is fixed for an initial period. Even though the payment is fixed for a time, the rate will eventually adjust. A VA streamline is a great way to refinance into a fixed rate loan.
What credit score do I need? Each lender sets their own minimum credit score for this program. Typically, that score is 640, but a few lenders allow a 620 or even lower. Click here to find a lender with a minimum score that fits your needs.
My property is a rental. Can it qualify? As long as you can prove the home was once your primary residence, the property should be eligible.
Will my lender need a new title report? Yes, the new loan will need a new title insurance policy. The title report will provide evidence to the lender that there are no outstanding judgments or liens that will affect the new loan.
Can the lender use my old certificate of eligibility (COE)? Yes, in fact, you don’t need a COE at all. Your current VA loan proves that you are eligible.
Do I have to use the same VA lender I used with my original VA loan? No, you can use any lender that is authorized to underwriter and approve VA loans.
Can I skip two payments with a VA streamline loan? It may seem like it but in reality, no payments are missed when using a VA streamline. At your closing, the old VA loan will be paid off entirely which includes accruing interest. In addition, some interest will be prepaid on the new loan. If both interest payments were included in your new loan, the payments were made, just not out of your pocket.
My lender wants an appraisal, paystubs, bank statements and other things that are not required. What’s going on? Even though the VA does not require these items, a VA lender may impose its own “overlays,” meaning additional rules.
If a particular lender overlay is keeping you from using the VA streamline refinance program, click here to find a lender who has different rules.
I’m Ready to Apply for my VA Streamline Refinance
VA streamline rates are very low and are helping thousands of current and former US military servicemembers lower their housing costs. Lenders are eager to help with these loans. There is so little documentation needed that mortgage companies can get applications through the system very quickly.
There are very few reasons a homeowner would not to apply for this payment-reducing program. It’s a great value and easy to qualify for.
Tim Lucas (NMLS #118763), Editor Tim Lucas is a licensed loan officer with over 12 years of experience as a loan originator, processor, and team manager. Get a live rate quote for your home purchase or refinance at MyMortgageInsider. Visit Tim on Google+, Twitter, and Facebook.