If you are a veteran struggling to make your mortgage payments, you may be able to reduce your interest rate and lower your monthly payment by qualifying for a VA streamline refinance loan. In rare instances, you may be able to get the VA to purchase your loan from a private lender -- this is called refunding. Read on to get an overview of the VA streamline refinance loan, including the eligible criteria, and to learn about refunding.
VA Streamline Refinance Loans
A VA streamline refinance is officially known as an Interest Rate Reduction Refinance Loan (IRRRL). An IRRRL is a VA-guaranteed loan that lowers your interest rate, which in turn decreases the monthly principal and interest payments.
If you have an existing VA-guaranteed loan, then you can apply for an IRRRL. (VA loans are specifically for veterans and are guaranteed by the federal government. Learn more about VA loans.)
The IRRRL must be in first-lien position so if you have a second mortgage, that lien holder must agree to subordinate its loan. (To find out more about loan subordination and lien priority, see our article What is a Subordination Agreement?)
Your Loan Entitlement
There is no additional change made to your entitlement for an IRRRL. (VA loan entitlement is the amount for which the VA will guarantee a loan. Most lenders will lend up to four times the amount of the total entitlement. The basic entitlement available to an eligible veteran is $36,000.) The new loan amount may be equal to, greater than, or less than, the original amount of the loan being refinanced, which may impact the amount of guaranty on the new loan, but not the entitlement.
In other words, an IRRRL is a VA-to-VA refinance that reuses the veteran-applicant's entitlement.
You Can Use an IRRRL to Refinance Underwater Property
Generally, an IRRRL does not require an appraisal, credit information, or underwriting so you can refinance an underwater home (where you owe more than your home is worth). The basis for the loan is the existing VA loan, not the current market value of the property.
Current Occupancy Not Required
Additionally, you do not need to currently occupy the property to qualify for an IRRRL (though it may be easier to get approved if you live in the home). You only need only certify that you previously occupied the home. For example, this means that if you previously lived in the home, then relocated and rented it out, you still may be able to obtain a IRRRL.
Cost of an IRRRL
All veterans using the VA Home Loan Guaranty benefit must pay a funding fee. For an IRRRL, the funding fee is 0.5%.
You do not have to pay the fee if you are:
- receiving VA compensation for a service-connected disability,
- entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, or
- you are the surviving spouse of a veteran who died in service or from a service-connected disability.
The IRRRL can be completed with no money out of pocket by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs. (The funding fee can be paid in cash at closing or added to the new loan.)
However, loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. You cannot receive any cash out from the loan proceeds.
Another Option for Veterans: Refunding
If you are having difficulty paying your mortgage and are facing foreclosure, VA has the discretionary authority to purchase the loan from the private lender and take over the servicing of that loan. This is called "refunding" (which in this sense means “to fund again”).
Refunding is rare, but if you are in default on your mortgage payments and your lender has refused to provide you with a forbearance, repayment plan, or loan modification even though you have the ability to make mortgage payments or will have the ability to make them in the near future, you may qualify.
Learn more about forbearance, repayment plans, loan modifications, and other options to avoid foreclosure in our Alternatives to Foreclosure area.
Mortgage Help for Veterans
The VA provides assistance to veterans who are having problems making their mortgage payments.
Veterans with VA-Guaranteed Loans
If you’re a veteran with a VA-Guaranteed loan, the VA can provide a specialist who can intervene with the servicer on your behalf and help you work with your servicer to explore all options to avoid foreclosure, as well as conduct financial counseling. (To find the nearest VA Regional Loan Center near you, go to the VA’s Regional Loan Center Contact Information website.)
Veterans with Non-VA Guaranteed Home Loans
If you’re a veteran, but your loan is not guaranteed by the VA, the VA does not have the legal authority to intervene with the servicer on your behalf. However, you can still call your nearest Regional Loan Center to speak to a specialist who can give you advice on approaches to take with your servicer. (Go to the Department of Veterans Affairs website to get more information about what to do if you’re a veteran who is having difficulty paying your mortgage.)
For More Information
To learn more about an IRRRL, go to www.benefits.va.gov, click on “Home Loans” and then “Interest Rate Reduction Refinance Loan.”