Can You Refinance a Veterans Affairs (VA) Loan to Get a Lower Rate?

Veterans Affairs (VA) loan borrowers often wonder if they can refinance their VA loan to get a lower interest rate. Depending on your situation, you might be able to do that using a VA Interest Rate Reduction Refinance Loan (IRRRL).  

This loan type, often called a VA streamline refinance, is one tool that borrowers who have an existing VA loan can use to potentially lower their interest rates. In this article, we will explain more about what a VA IRRRL is, who it’s for, and how it works.

What is a VA IRRRL?

A VA IRRRL is a mortgage refinancing option available to eligible veterans who already have a VA home loan. Like other VA loans, it is guaranteed by the VA and offered through private lenders. Eligible borrowers can use a VA IRRRL to refinance an existing VA loan for the purpose of getting a lower rate than the existing loan.  

In most cases, the IRRRL should also help the borrower lower their principal and interest payments when compared to the original VA loan. Note, you may not be able to get a lower rate just because you take out an IRRRL. Various factors go into determining the final rate of a loan.  

VA IRRRLs are often called “streamline refinances” because the VA does not require things like home appraisals or credit underwriting, though your lender may have their own requirements for those. Borrowers are also able to finance both the closing costs and VA funding fee into the VA IRRRL, meaning you would not have to pay those fees upfront. However, you would then be paying them off over the life of the new loan.

Who is eligible for a VA IRRRL?

To be eligible for a VA IRRRL, you must meet at least these three following criteria:  

• You have an existing VA home loan. 

• You are refinancing the existing VA home loan with the IRRRL. 

• You can certify that the home purchased with the VA loan is your current or former primary residence. 

If you’ve taken out a second mortgage on the home before trying to get the IRRRL, the loan holder would have to agree to make the refinanced loan the first mortgage.

VA IRRRL Requirements

Interest Rate Decrease Requirements

Naturally, an IRRRL should result in a lower interest rate than the existing VA loan. The only acceptable instance in which the IRRRL interest rate doesn’t have to be lower than the original loan is when the original loan is an adjustable-rate mortgage (ARM).  

Payment Decrease/Increase Requirements

In most cases, the principal and interest payments should be lower after refinancing with an IRRRL. However, there are some exceptions. The payments on the VA IRRRL do not need to be lower if: 

• The existing VA loan is an ARM 

• The IRRRL’s term is shorter than the existing loan’s term 

• The IRRRL includes energy efficiency improvements 

Sometimes, the monthly payment on your IRRRL can increase significantly compared to the original loan. That may be the result of financing the closing costs, funding fee, or up to two discount points into the loan. It could also happen if you are refinancing an ARM.  

If the monthly payment goes up by 20% or more, your lender will have to determine if you qualify for the IRRRL in underwriting. Should you qualify, your lender will need to certify that you qualify for the newly increased payment.

FAQs

Does a VA IRRRL impact my entitlement?

Your current entitlement would not be charged when taking out an IRRRL. So, if you get an IRRRL, your entitlement should remain the same as before you refinanced.  

Is there an occupancy requirement for VA IRRRLs?

Unlike other kinds of VA loans, you do not need to currently live in your home to be eligible for an IRRRL. Borrowers must simply be able to prove that they either currently live in the home or that the home was previously their primary residence.  

Can I refinance a delinquent loan with a VA IRRRL?

The VA states that borrowers are sometimes able to refinance loans with an IRRRL even if they will be 30 days or more past due when the refinance closes. However, that refinance would have to go through prior approval, and the lender would have to determine two things to move forward: 

1. The cause for the loan delinquency has been sufficiently fixed. 
2. The borrower can actually afford to make their payments on the new loan and intends to do so. 

Can I take out cash with a VA IRRRL?

In general, you cannot use a VA IRRRL like you would a VA cash-out refinance. Meaning you cannot take out equity and use that cash for other purposes. The money you get when refinancing with an IRRRL must be used to pay off your old VA loan or other costs related to the refinancing. In fact, if the IRRRL was positioned to give the borrower extra cash, lenders would need to round the loan amount down to avoid that.  

There are some exceptions to this, however, such as the borrower getting up to $6,000 for energy efficiency improvements that are completed within 90 days before closing the IRRRL. But the purpose of a VA IRRRL is not to get cash. If that is your goal when refinancing, you may want to learn more about VA cash-out refinances.  

What closing costs can be included with a VA IRRRL?

The VA funding fee is included in a VA IRRRL, as well as other allowable fees, like the lender’s one percent flat charge and reasonable discount points. Other itemized fees that borrowers may have to pay at closing include: 

• Appraisals 

• Recording Fees 

• Credit Report 

• Prepaid Items (things like a portion of the current year’s taxes or initial deposits for the insurance account) 

• Hazard Insurance 

• Flood Zone Determination 

• Survey 

• Title Examination and Insurance 

• Special Mailing Fees for Refinancing 

• Mortgage Electronic Registration System Fee 

• Other Fees Authorized by VA 

Further, if there is a charge for a service done by a third party, the amount you pay must be the actual cost of the service. Closing costs for a VA IRRRL can be expensive, so be sure you can afford to pay those fees.

Final Thoughts

Borrowers hoping to refinance their VA loan to get lower interest rates might find that a VA IRRRL has the potential to help them achieve that goal. That is one of the stated goals for that type of loan. However, it is not always the case that it will be possible to lower your rate. A number of factors come into play, including the state of the market. Be sure to talk to your lender about their rates and carefully consider whether an IRRRL is the right move for you.