Do VA IRRRLs Come with Closing Costs?

As a military borrower with a loan backed by the U.S. Department of Veterans Affairs (VA), you may be wondering what a VA refinance entails. If you opt for a VA interest rate reduction refinance loan (IRRRL), also known as a VA streamline refinance, you may be able to experience a handful of advantages. These may include more favorable terms, less paperwork, no private mortgage insurance (PMI) and more. 

However, a common concern about any mortgage, including VA IRRRLs, is closing costs. How much will you have to pay? What kind of closing costs are there? Is there a way to reduce closing costs? Who is responsible for paying which costs?  

Learn the answers to these questions and more before you get to closing day.

Closing Cost Breakdown 

The simple answer to the question, “Do VA IRRRLs come with closing costs?” is yes. But there are some differences to a VA IRRRL than other refinance loans.  

VA Funding Fee 

Since VA loans don’t typically require down payments or private mortgage insurance (PMI), the VA requires a funding fee. This fee is to help lower the cost for the loan for U.S. taxpayers. How much you pay for the VA funding fee is dependent on the amount of your loan and the type of loan you get.  

Origination Fee 

The origination fee is how much your lender will charge you for their services and for the completion of your loan. Origination fees for VA loans are a bit different than other loans. The VA limits lenders from charging you more than 1 percent of the loan amount in origination fees. This is to help keep homeownership accessible for eligible veterans. 

Discount Points 

Discount points, also simply called “points,” are fees you can pay in exchange for a lower rate. One discount point is usually equal to one percent of the loan amount. While there’s no limit to how many discount points you can buy at closing, you can only have two discount points included in a VA IRRRL. 

Other Closing Costs 

Other allowable fees for a VA IRRRL can include: 

• Prepaid taxes and hazard insurance 

• Title examination fee 

• Title insurance fee 

• Flood zone determination 

• Environmental endorsements 

• Recording fees 

• Special mailing fees 

These may not all be applicable for every loan, so make sure to keep in touch with your lender or ask for an itemized list of closing costs before you get ready to pay them.

Payment Options 

There are a couple ways you can pay for closing costs or get them lowered.  

Include in the Loan 

For a VA IRRRL, you may be able to include the VA funding fee in your loan and pay it over time. You may also include any allowable fees in the loan, but you can only include two discount points in the loan amount, as previously mentioned.  

Negotiate with the Lender 

You may be able to speak with your lender to see if you can get any fees removed or lowered. They may also be able to set your new interest rate high enough to enable them to pay all closing costs, as long as the interest rate requirements are still met.  

Closing Cost Assistance 

There are some programs that help military borrowers afford closing costs, such as the Military Housing Assistance Fund. You may want to take some time to research these programs to see if you can take advantage of one. 

Pay Them in Full at Closing 

If you’re able to, you may also be able to pay all closing costs in full at closing. However, it doesn’t hurt to ask your lender about your payment options and if any costs can be lowered.

Eligibility for Waivers 

The VA may be able to waive the VA funding fee based on some certain requirements. If any of the following are true, you may not have to pay the VA funding fee: 

• You’re receiving compensation from the VA for a disability related to your service. 
• You’re eligible to receive compensation from the VA for a disability related to your service but are receiving retirement or active-duty pay instead. 
• You’re receiving Dependency and Indemnity Compensation (DIC) because your veteran spouse passed in service. 
• You’re a service member eligible to receive compensation because of a pre-discharge claim. 
• You’re a service member who has received the Purple Heart.

Take Advantage of Your Home Loan Benefits 

As you’re getting ready to go through the VA IRRRL process, make sure you’re aware of your home loan benefits as an eligible military borrower. Closing costs are inevitable but there may be ways you can reduce them or pay them off over time. It’s easy to put off until the last second, but it’s even easier to ask the resources that are there for you.