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VA Streamline Refinance Mortgage Program

What is a VA Guaranteed Interest Rate Reduction (Streamline) Refinance Loan or VA IRRRL?

An Interest Rate Reduction Refinance Loan (IRRRL) is also commonly referred to as a VA Streamline Refinance Loan. VA IRRRL mortgage programs can be used by veterans to complete a quick refinance of their existing VA loan. The new loan guaranteed by VA must only be used to pay off an earlier existing VA loan on the property being refinanced.

The purpose of the new loan must be either the reduction of the interest rate or the refinance into a VA-backed fixed rate mortgage from a VA adjustable rate mortgage (ARM).

VA Streamline and IRRRL are the Same

The VA Streamline refinance program only allows for rate and term refinance of the existing first VA home loan. Closing costs and other related fees can be included with VA streamline refinancing. Second mortgages, home equity loans and other debt can’t be included in the loan transaction as a VA streamline loan only allows for the payoff an existing VA guaranteed first mortgage on residential properties.

A VA IRRRL loan has many features that make it convenient and flexible for veterans looking to refinance their VA mortgage. Unlike a conventional mortgage transaction, the total amount of paperwork involved in qualifying for a VA streamline mortgage loan is minimal. The qualifying guidelines related to credit and appraisals are totally relaxed. VA streamline loans don’t require an appraisal, and in most cases, the credit criteria are also waived.

VA IRRRL Streamline Mortgage Eligibility Requirements

The submission checklist for a VA IRRL loan guarantee outlines all the specific requirements needed for a loan to become eligible for the refinance loan. The standard underwriting involved in conventional residential lending is complex, time consuming and rigid. VA doesn’t need the lender to perform a rigid underwriting evaluation unless the new monthly payment on a IRRRL loan is more than 20% of the earlier loan payment.

In cases where the monthly PITI is going above the 20% limit, VA requires a VA lender to certify that the borrower qualifies for the new payment using supporting documentation.

VA streamline lenders can close IRRRL rate and term refinance loans on an automatic basis. A prior authorization is not required by an IRRRL lender to do so. This automatic closing option is not available for those VA loans in arrears by 30 days or more. A prior underwriting approval must be sought from VA by lenders looking to refinance a delinquent VA first mortgage with an IRRRL streamline program.

Reducing or lowering the prior monthly principal and interest payment is a primary requirement for a streamline VA refinance loan. A few situations are exempted for this payment limit condition. In just three scenarios, can a new monthly payment exceed the earlier P&I on a IRRRL mortgage. Borrowers can overlook this requirement if they are refinancing an earlier VA adjustable mortgage rate loan into a new VA fixed rate mortgage, or when changing the loan term, or when they finance the cost of energy efficient improvements.

No Cash-Out Allowed

A VA streamline refinance can’t be used to do cash-out transactions. If a second mortgage or a home equity loan exists, then the new loan can’t be used to pay them off. In such cases, those loans need to be subordinated to the new VA IRRRL loan.

Borrowers can lower their interest rate by paying a few discount points. VA allows the inclusion of two discount points (2% of loan amount) as a part of closing costs and fees for streamline refinance transactions. The loan documentation for a streamline VA loan guarantee requires special paperwork.

All loans submitted for a VA IRRRL approval must include the IRRRL comparison statement and form 26-8923, the streamline loan worksheet. CAIVRS information for the VA refinance lender must be noted compulsorily on the form 26-8923. If a lender is charging a loan origination fee, then it must also be noted here. The final HUD-1 must match with the amount mentioned on this sheet.

VA Streamline Loan Limits

As far as Veterans Administration is concerned, there is no maximum loan amount limit for a VA IRRRL loan. The VA IRRRL loan amount can even exceed the $417,000 limit commonly applied to conventional and government-backed home loans. No other debt can be paid-off with a new VA streamline refinance loan; only existing mortgage amount and closing costs can be included in the new streamline refinance loan amount. Any liens and mortgages must be subordinated prior to closing. VA strongly requires that the borrower doesn’t get any cash-back from the closing. In those rare situations when a last minute change causes adjustments, VA allows the borrower to receive up to $500 in cash-back. This provision should be viewed by VA streamline lenders as an exception, and not as a rule.

VA also requires that the loan term doesn’t exceed from the prior term by more than 10 years. If the earlier term was for 15-years, then the new allowable VA streamline loan term cannot be beyond 25 years. The occupancy requirement needed on purchase transactions is not required for VA IRRRL loans. The veteran is only required to state that he/she had earlier resided in the residential property being refinanced with a new VA streamline mortgage loan.

VA IRRRL Interest Rates

The interest rates offered by lenders on VA loans will generally be quite comparable and competitive to other insured conventional loans. The spouse of a deceased veteran can refinance with a Streamline IRRRL loan using the veteran’s certificate of eligibility, provided the surviving spouse was a co-borrower on the VA loan being refinanced.