VA IRRRL & Cash-Out Refinance: How Veterans Can Lower Monthly Payments

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For veterans who are currently in a home that is financed with a VA loan, when interest rates drop, they often wonder what their VA loan refinance options are. The VA loan program has two basic options for VA loan refinancing: the VA IRRRL or cash-out refinance and the VA streamline refinance.

VA Loan Cash-Out Refinance

The VA loan cash-out refinance is popular with veterans who want to refinance their house and turn their home equity into cash at closing. In some cases when qualified, homeowners can refinance up to 100 percent of their property value for mortgage debt. Other times, homeowners can refinance up to a lower percentage and use the cash to cover debt payments, etc. One of the most popular reasons for getting cash out of the equity in their home for many veterans is for home improvements or to consolidate other debts they may have.

The VA cash-out refinance simply replaces the existing mortgage. It does not function like a home equity loan, which is a second loan that runs alongside the current loan, although the two are often confused.

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As of the writing of this article, the following regulations apply:

  • When using a cash-out refinance, the standard VA loan underwriting and credit process apply.
  • Closing costs and funding fees can be rolled into the loan amount.
  • Applicants must certify that they intend to occupy the refinanced property.

Related: What is a VA Loan and Why Should I Consider Using One?

VA IRRRL (Streamline Refinance)

The VA IRRRL (interest rate reduction refinance loan) or streamline refinance program is the easiest way for a veteran with a VA loan to refinance their home if they don’t want any cash out and just want to lower their rate. The VA streamline refinance is designed to allow veterans to reduce their interest rate when rates are lower with the minimum amount of paperwork (which is why it is called the “streamline refinance” program). With the VA IRRRL, there is no appraisal required in some cases, no need for another Certificate of Eligibility, and few out-of-pocket costs. For borrowers who have an FHA loan, there is also an FHA streamline refinance that has similar guidelines to the VA streamline refinance program.

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Related: Investment Property Loans: The Ultimate Guide to Funding Your Deals

The main stipulations of this type of refinancing are:

  • The borrower cannot receive any cash back from the refinance.
  • The borrower must certify that they currently occupy or have previously occupied the property.
  • The monthly payment must be lower than the previous loan’s monthly payment. The only exception is for those who refinance an ARM to a fixed rate mortgage.
  • The borrower must be current on their mortgage with no more than one 30-day late payment within the past 12 months.

Generally speaking, if you can save even 1% on the interest rate on your VA loan, then it could potentially add up to hundreds of dollars in savings each month and thousands of dollars each year depending on how big your loan amount is.

If you are interested in learning more about the VA IRRRL or cash-out refinance, be sure to contact a lender who is an approved VA lender or visit the VA loan official website here.

Have any questions about this refinancing program? Any info you’d add?

Let me know with a comment.

About Author

Allison Leung

A career writer, editor and blogger, Allison serves as the Lead Editor and Community Manager for BiggerPockets.com. In the past, she has channeled her passion and curiosity for all things real estate into her jobs by working in real estate law and heading a blog about real estate market trends. Don’t ask about her dog, Ace, unless you want to see approximately 500 photos of his (adorable) face.

2 Comments

  1. Eric Schenck

    Thanks for explaining it! I had been getting lots of mail about VA IRRRL from unfamiliar lenders who want me to refinance. I wasn’t sure if it was a legit thing. I get skeptical when I get letters in the mail from people I don’t know.

  2. David Jensen

    I was in the same situation and blew off the VA-IRRRL flyers for years. Then I heard they were legit and last week reached out to my original mortgage broker of my primary residence to confirm. (excellent timing Allison!) He quoted me a rate about 0.5% lower than my current mortgage rate,which would have reduced my payment by approximately $160.00/mo. He ran the numbers with no money out of pocket and I would skip one monthly mortgage payment. He said the process is pretty simple.

    He also quoted the HARD cost, processing/underwriting fee, credit, title work, appraisal, etc.. would be in the ballpark of $2500. So I would recoup the cost in 15 month. This is good as long I’m staying in the house long term. Other cost wrapped into the loan is the setup of a new escrow account. The escrow isn’t taken into account because I’m currently contributing funds to an escrow account, so this is a wash. There is a little overlap but, that works out after the closing (I would be refunded any funds in my current escrow account after closing).

    The rate he quoted me is because, they make their profit on serving the loan, not originating the loan.
    His quote was higher than the postcards/flyers which, as you know, are with APRs in the 2% range because they are either 15yr rates or 30yr with points (additional hard cost).

    Be careful, I had one flyer that advertised 1.75% APR in big bold letters on the front, and the fine print on the back essentially said “yeaaah, there’s no way we can offer a rate of 1.75%.” Caveat Emptor!

    Hope this additional anecdotal info is helpful. I have not pulled the trigger on doing the VA-IRRRL yet so if folks have recent experience with a particular reliable lender with rates better than 3.25% w/o points…i’m all ears as, like Eric Schenck, i’m not a big fan of unsolicited mail either!

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