VA IRRRL credit score requirements make qualifying easier

July 28, 2022 - 9 min read

About the VA Streamline Refinance loan

A VA Streamline Refinance loan can lower your monthly payments, lower your interest rate, or accomplish both goals at once. And it could do all this without checking your credit score, appraising your home, or verifying your income.

Officially known as the VA IRRRL — which stands for VA Interest Rate Reduction Refinance Loan — the VA Streamline Refi could be the fastest, simplest, and most affordable way to refinance your existing VA loan.

Check your VA IRRRL eligibility. Start here

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Does the VA IRRRL require a credit check?

The Department of Veterans Affairs, which runs the VA loan program, does not set a minimum credit score for IRRRL borrowers.

In fact, the VA does not require lenders to check your credit report, your debt-to-income ratio, or your employment history. Instead, the VA relies on the payment history on your current VA loan to determine whether you’re eligible for the new loan.

So, if you’ve made your existing VA mortgage payments on time for the last 12 months — and if you’ll lower your interest rate with a refinance — it’s likely you’ll qualify for the VA IRRRL.

You could qualify even if your credit score has dropped or your debts have increased since you closed on your current VA loan.

VA lenders can still check your credit

In most cases, the VA won’t ask lenders to put your IRRRL loan application through credit underwriting. But your lender may still check your borrowing credentials and enforce its own rules.

Mortgage lenders do this because they’re lending the money. The VA’s role is to insure the loan. Lenders must follow the VA’s minimum rules to get the government agency’s backing, but they don’t have to stop there. They can apply their own rules, too.

If you wouldn’t qualify for a new VA loan based on your current finances, be sure to check with the lender before applying. If the lender plans to run your credit, shop around for a lender that won’t.

How to qualify for the VA IRRRL program

There are no VA-mandated income or credit score requirements for the IRRRL program. The VA also lets you skip the typical real estate appraisal process needed for most refinance loans.

For the VA’s purposes, you can qualify for an IRRRL if:

  • Your current mortgage is a VA loan that closed at least 210 days ago
  • You have no more than one late payment over the past year
  • You use, or have used, the home as your primary residence. The VA may refer to this as meeting “occupancy requirements”
  • You’ll get a net tangible benefit from the refinance

You’ll also need to meet any additional guidelines set by your lender. Loan requirements that lenders set above and beyond the VA’s basic guidelines are known as “overlays.”

What is “net tangible benefit?”

The VA clarified net tangible benefit with a rule change in 2019: The VA says your new loan’s rate must be at least 0.5% less than your current VA loan rate — assuming both loans have fixed rates.

The VA clarified this rule because it wants your new IRRRL rate to justify the closing costs on a new loan. Closing costs include the VA funding fee of 0.5% along with lender’s origination fees.

If your closing costs totaled, say, $2,500 and your new loan saved you $25 a month, you’d need 100 months — more than eight years — to recoup closing costs.

That’s too long. The VA wants your new interest rate to save enough money within three years to cover your upfront costs. Usually, a 0.5% interest rate reduction can accomplish this goal.

What about adjustable-rate mortgages?

Net tangible benefit works differently when adjustable-rate mortgages (ARMs) are involved.

If you were refinancing a fixed rate loan into an adjustable-rate mortgage, you’d need to lower your interest rate by 2% to achieve a net tangible benefit from the refi.

If you’re doing the opposite, turning an ARM into a fixed rate loan, you should automatically meet this net tangible benefit requirement.

Check your VA IRRRL eligibility. Start here

What makes a VA IRRRL credit-qualifying?

Sometimes, the VA will require a lender to fully underwrite an IRRRL application. This is known as a “credit qualifying IRRRL” loan. Expect a credit check and income verification if:

  • Your current VA loan is not up to date: If your current loan is more than 30 days past due, the lender will have to make sure you qualify for the new loan
  • Your payment will increase by 20% or more: This could happen if you’re refinancing into a shorter loan term to save money in long-term interest
  • You’re adding or removing someone from the loan: A veteran or active duty service member with a Certificate of Eligibility must remain on the home loan, but if you’re adding a new spouse or a different veteran to the loan, the VA recommends that lenders check all borrowers’ qualifications

Loans that require credit qualifying may take longer to close, and they usually have higher closing costs.

Can I buy discount points to lower my IRRRL rate?

VA homeowners can buy discount points to lower their new IRRRL refinance rate. Typically, a discount point costs 1% of the loan amount and lowers the interest rate by 0.25 percent.

For example: For a $200,000 refinance loan, a discount point would cost $2,000. This could be money well spent. Paying $2,000 upfront to lower your rate from 6% to 5.75% could save more than $7,000 over 20 years.

However, the average homeowner won’t stay in the same loan that long. If you think you might sell or refinance your mortgage loan again within a few years, don’t buy discount points.

Can I finance discount points into my IRRRL?

The VA will allow you to roll the cost of up to two discount points into your new loan amount. You can buy more than two discount points, but you’d need to pay cash for them.

Here’s another important limitation: You can’t use discount points to meet the VA’s net tangible benefit requirement.

Yes, buying two discount points should lower your rate by 0.5%, and the VA requires a 0.5% reduction to qualify for an IRRRL. But the VA specifies that discount points can’t be the reason for the interest rate reduction.

VA IRRRL vs. VA cash-out refinance

If you don’t meet the requirements for a VA IRRRL but still need to refinance, the VA home loan program offers another refinance option: the VA cash-out refinance.

Unlike an IRRRL, a VA cash-out refinance will always require credit check, income verification, and a new home appraisal.

But qualifying for the cash-out refi won’t depend on getting a lower interest rate. Of course, it’s best when you can lower your rate. Even if you won’t, though, the cash-out refi offers some other benefits:

  • Accessing home equity: The loan lets you borrow against your home equity. Equity is the part of your home’s value you’ve already paid off. In contrast, IRRRL lets you access only $6,000 in home equity — and only if you use the money for energy efficient home improvements
  • Refinancing any type of loan: Unlike IRRRL, the VA cash-out refinance can replace any other loan type, including conventional loans, FHA loans, and USDA loans
  • Borrowing up to 100% loan to value (LTV): This is unusual for a refinance loan. The VA will insure cash-out loan amounts up to 100% of your current home value. You’ll still have to qualify with your lender for the loan amount based on your income and credit score, but the VA will allow it

Compared to the IRRRL, closing costs will be higher for a cash-out loan because lenders put your loan application through the full underwriting process.

Also, the VA will require a home appraisal which adds to closing costs. And, the VA will charge its full funding fee of 2.3% for first-time VA loan borrowers. Repeat VA borrowers will pay 3.6 percent. The funding fee for an IRRRL is only 0.5 percent.

Check your VA refinance eligibility. Start here

More about the VA loan program

Both the VA Streamline Refinance (IRRRL) and the VA cash-out refinance are offered through the Department of Veterans Affairs’ home loan program.

Created in 1944 as part of the G.I. Bill, the VA Loan Guaranty Program helps military borrowers buy and refinance their own homes.

This entitlement program offers two huge advantages for home buyers:

  • No down payments required: VA loans require no money down. Most other common loan programs require a 3% down payment, and FHA loans require 3.5% down
  • No mortgage insurance: FHA and USDA loans charge their own brand of mortgage insurance; conventional loans require private mortgage insurance unless buyers put 20% down. VA loans charge only an upfront funding fee

Refinancing homeowners will also owe no ongoing mortgage insurance payments.

Who qualifies for VA loans?

The Department of Veterans Affairs defines military borrowers, in general, as borrowers who have served 181 days during peacetime, 90 days during wartime, or have spent six years in the Reserves or National Guard.

The VA also makes its home loan program available to surviving spouses of service members killed in the line of duty.

Eligible borrowers should apply for a Certificate of Eligibility (COE) which shows VA lenders they’re eligible for the loan program.

VA loans are assumable

When your is assumable, you can sell your home with your mortgage attached; another VA-eligible buyer can “assume” your mortgage at its current rate.

Assumable mortgages are especially marketable in an environment where mortgage rates are rising.

If you got your VA loan in 2020 or 2021, when rates were lower than today’s average rates, you could use the low mortgage rate as a selling point.

Here are some veterans discussing their personal experiences with VA loans.

VA loans have no loan limits

FHA and USDA loans, which are both backed by a government agency, set maximum loan sizes for borrowers. Conventional loans have loan limits, too. The VA does not.

You could borrow up to the limits allowed by your VA-authorized lender. The lender’s limits will be based on your credit qualifications. If you have excellent credit, low debts, and a high income, you can buy a more expensive home.

VA IRRRL credit check FAQ

What is the minimum FICO score for VA IRRRL?

The VA does not set minimum credit score requirements for the VA IRRRL, and it doesn’t require lenders to check your score at all. However, lenders may still check your FICO score based on their own policies. Lenders who check your score will likely look for a score in the 580 to 620 range or higher.

Can you get a VA loan with a 600 credit score?

Yes, many lenders will underwrite a VA loan for borrowers with credit scores of 600. But your credit score won’t be the only variable. You’ll also need to meet your lender’s debt and income rules. You could qualify for a VA Streamline Refinance (IRRRL) with a lower score because the VA doesn’t require lenders to run a credit check.

Does IRRRL require income verification?

No, the VA will not require income verification for an IRRRL. Instead, the VA relies on payment history to see whether you can afford the refinance loan’s monthly payments. But lenders can still ask for income verification. If this is a problem for you, shop around for a lender whose rules don’t exceed the VA’s minimum underwriting requirements.

What are today’s mortgage rates?

The VA IRRRL is among the simplest, fastest ways for VA homeowners to refinance into lower interest rates.

Of course, getting a lower rate depends a lot on current market conditions, and average rates are higher now than they were in 2020 and 2021.

But if you got your VA loan in 2019 or earlier, you may still be able to lower your rate with an IRRRL — especially if you have good credit now.

The best way to find out is by checking with a VA-authorized lender and asking for preapproval.

Time to make a move? Let us find the right mortgage for you

Dan Green
Authored By: Dan Green
The Mortgage Reports contributor
Dan Green is an expert on topics of money and mortgage. With over 15 years writing for a consumer audience on personal finance topics, Dan has been featured in The Washington Post, MarketWatch, Bloomberg, and others.