Prepare Your Credit for a VA Streamline Refinance (VA IRRRL)

Understanding your credit score so you can feel confident in getting a VA loan doesn’t have to be complicated.

The VA streamline refinance loan can extend significant advantages to homeowners who want to lower their interest rate. 

The Interest Rate Reduction Refinance Loan (“IRRRL,” pronounced “Earl”) from The U.S. Department of Veterans Affairs can be one of the best options for refinancing. This program typically requires less paperwork and comes with lower associated costs, making it easy to benefit from this program.

What is a VA Streamline Refinance (VA IRRRL)

In simplest terms, the VA IRRRL is a program that helps borrowers refinance their current VA home loan with one that carries a lower interest rate and a reduced monthly payment. 

IRRRL, more commonly known as the VA streamline refinance, is a program run by the U.S. Department of Veterans Affairs. The majority of applicants see a reduction in the amount of interest they pay on their current VA loan. This lowers their overall monthly mortgage payments.

The VA streamline has different qualification requirements than the VA cash-out refinance, making the process much more straightforward, with less documentation. It makes eligibility more accessible. 

How Does a VA Streamline Refinance Work?

A VA streamline loan is not directly issued by the U.S. Department of Veteran’s Affairs. Their role is to determine who is eligible for a loan and help identify appropriate lenders. Because the government agency backs the loans, the loans pose less risk to lenders. This translates into lower interest rates for borrowers. 

VA streamline refinance loans offer many advantages over conventional loans, including more straightforward credit requirements, reduced interest rates, no home appraisal, and no down payment.

How Does My Credit Score Impact My Chance of Getting a VA Loan?

The VA IRRRL does not require a review of a borrower’s credit or Debt-to-Income (DTI) ratio. However, individual lenders may have specific income or credit history requirements.

Is There a VA Funding Fee?

Yes, the VA streamline refinance loan has a funding fee of 0.5% of your loan’s value. You can pay the funding fees upfront or roll them into your loan amount to be paid over time.

Does the VA Streamline Refinance Have Closing Costs?

Yes, the IRRRL has closing costs, usually between 1% and 3% of your loan amount. These are often lower than closing costs associated with conventional loans. Like the funding fee, you can either roll them into your loan or pay them at closing.

Do I Need To Provide My Certificate of Eligibility (COE)

Borrowers do not need to provide a new Certificate of Eligibility (CoE). Lenders can use a simpler email confirmation procedure in lieu of the CoE.

Does VA Streamline Refinance Have a Cash-Out Option?

The short answer is no. You can’t take cash out from an IRRRL. 

If you’re interested in a cash-out option, the VA cash-out refinance loan is worth a look. The VA-backed loan allows eligible borrowers to borrow cash from their home equity without restrictions on how they can use it.

How Much Can I Borrow With a VA Streamline Refinance?

Your refinance loan cannot be more than your original VA loan plus any additional finance funding or closing fees.

Can I Use a VA Streamline Loan to Buy My First House?

A VA streamline loan, or IRRRL, can only be used to refinance a property you already hold a mortgage for, with your VA loan eligibility. Because of this, first-time homebuyers are not eligible. Instead, first-time homebuyers can benefit from a VA purchase loan.

I Have a Disability. Does That Matter?

Veterans who are living with service-related disabilities are typically exempt from the VA streamline refinance funding fee. 

Do I have to make a downpayment?

While there are costs associated with the VA IRRRL loan, a down payment is not required. 

Applicants can choose to complete the VA streamline refinance loan process without out-of-pocket expenses by including any funding fees and closing costs in the new loan amount.

How To Qualify For The VA Streamline Refinance?

VA Service Requirements

VA streamline loan eligibility is service-based. It looks at when and how you served. Some contributing factors taken into consideration include: 

  • Your service status, e.g., active duty, separation 
  • Your years of service, and 
  • Your service record

While the VA provides detailed eligibility guidelines outlining who qualifies for veteran’s benefits, you could meet eligibility requirements if you are: 

  • A current active duty military service member, 
  • A military veteran, or 
  • The spouse (including surviving spouse) of a service member

VA Mortgage Requirements

Even though VA streamline loans are easier to qualify for than conventional loans, you still need to meet specific requirements. These include the following:

  • Your current mortgage must be a loan through the VA.
  • Your mortgage must be in good standing.
  • It must be at least seven months since you bought your home and made your first payment on your current mortgage. You must have made at least six full mortgage payments on your current loan 
  • There must also be a “net tangible benefit.” This simply means that there must be some actual cash benefit to the refinance, either through a reduced interest rate or a cheaper monthly payment

Can I Refinance My VA Loan With My Current Credit? What do I Need to Prepare?

Veteran’s Affairs doesn’t check your credit score or credit history to determine IRRRL eligibility. VA loans don’t require additional underwriting, and you don’t need a new home appraisal. 

However, it’s important to note that not all lenders follow all recommendations set out by the VA. Lenders can ask to see your credit history. 

So, while the VA doesn’t require a minimum credit score, some lenders will look at a borrower’s credit rating when determining eligibility.

In situations such as these, a score around 620 is typical to qualify. If your credit score is less than that, you may still qualify, however, you may have to pay a higher interest rate. Lenders might also ask that you clear up any outstanding balances and past-due accounts or reduce your credit load before approving a loan. 

Deciding whether to refinance your home can be a challenge, especially with so much information available from so many sources. We’d love to sit down with you at our office, at your home, or through a video chat to help you sort through it all.

Reach out to us and let our VA streamline loan experts help you decide if this is a good time to refinance your home loan.

Photo by Maria Perez from Pexels

Further Reading