VA Streamline Refinances Double As Popular Program Catches On

October 3, 2016 - 5 min read

VA Streamline Application Numbers Are Way Up

Getting a low-interest, low-cost VA loan is probably the best way for eligible veterans and active military members to purchase or refinance a home.

VA refinances are particularly impressive.

Homeowners with a VA loan currently will find that the Interest Rate Reduction Refinance Loan (IRRRL) is the fastest and cheapest method of dropping their rate and payment.

Nearly 195,000 veterans completed a VA IRRRL, otherwise known as a VA streamline, in 2015.

That’s more than a 100% increase from 2014.

The reason: almost unfathomably low VA home loan rates.

And rates are dropping further into 2016. Standard conventional rates just hit three-year lows. VA rates are even lower than conventional ones, by about 0.14% according to mortgage software and data company Ellie Mae.

Homeowners who have a VA loan are realizing how easy it is to refinance into today’s rates with the VA streamline program.

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What Is A VA Streamline Loan?

A VA streamline loan allows current VA mortgage holders replace higher interest loans with a new loan at today’s rates.

But the homeowner’s current loan doesn’t have to be all that high to save a lot of money.

With VA rates in the low 3s, many homeowners are refinancing even though they already have an incredibly low rate in the 4s.

The U.S. Department of Veterans Affairs created this refinance option to give veterans a more efficient way to refinance when rates dropped.

It’s called a “streamline” loan because most traditional refinance documentation requirements are stripped out. The veteran and homeowner can refinance with lower closing costs and less time between application and closing.

This is the best refinance in today’s mortgage market, no contest.

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No Appraisal. No Paystubs. No Bank Statements

Homeowners using a VA IRRRL don’t provide an appraisal for the property, as is required with other types of VA home loans, and most home loans in general.

Also, lenders aren’t required to get credit reports or specify minimum credit scores for borrowers.

However, most lenders impose “overlays,” or additional rules, on top of VA requirements. So most, if not all, lenders have policies calling for credit reports and minimum credit scores.

The good news is that most lenders are very lenient on credit history. Applicants can typically have a credit score between 580 and 620.

Plus, VA does not require re-approval of the applicant’s income or bank account balances.

Some veterans experience a loss of family income after they purchase a home. Their hours are cut, or one spouse stops working to care for children.

Whatever the case, the veteran is not barred from qualification due to lower income compared to when they purchased the home. With no paystubs, W2s, or tax returns, the lender does not know how much the applicant makes.

If the applicant is paying the mortgage on time now, lenders assume they will continue to do so with the new, more affordable loan.

The VA streamline program is simply the most flexible way to refinance for those who already have a VA loan.

VA Refinances: Protecting The Veteran

Some applicants may not think they are suitable for a streamline loan, when in fact they are good candidates.

For instance the new loan payment including principal and interest generally has to be lower than the old payment.

But the “deeper” rule for the VA IRRRL program is that the refinance has to benefit the veteran. In fact, the lender will not proceed with a loan application when no borrower benefit is evident.

Reduction in payment is one benefit, but there are others.

A VA streamline loan is allowed if the payment rises, if the purpose is to convert an adjustable rate into a fixed-rate.

The veteran can also take up to $6,000 in cash for energy-efficient improvements while opening a VA streamline loan.

The extra cash out might raise the applicant’s payment slightly, but the refinance could still be allowed. Again, a benefit to the veteran exists.

VA streamline loans are intended to pay off only the existing VA loan. However, even if a homeowner has a second mortgage, VA’s guidelines say the streamline loan can be made if the holder of the second mortgage agrees to allow the new VA loan to be the first mortgage.

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VA Streamline Advantages

This VA home loan refinance program allows the borrower to close the loan without any out-of-pocket costs at closing. These could be origination fees, VA funding fees or other costs.

VA allows these closing costs to be rolled into the amount of the new loan. Or, the veteran has the option to pay closing costs in cash.

VA’s rules also limit the amount and kind of fees lenders can charge, so even if the borrower does pay for the closing costs in cash, fees are likely to be lower than with any other type of mortgage.

Another benefit is that the veteran’s eligibility does not have to be re-checked.

One of the first steps when applying for a VA home purchase is to ensure va loan eligibility. An active duty service member or veteran is typically eligible after the following lengths of service.

  • 90 days while on active duty during wartime
  • 181 days active service during peacetime
  • Six years in the National Guard or Reserves

However, there is no Certificate of Eligibility required for a VA streamline loan. The fact that the veteran has a VA loan already is evidence that they have proved eligibility at some point in the past. Eligibility never expires.

Refinance An Investment Property With The VA IRRRL

Streamline loans also have looser occupancy requirements.

For other VA loans, the borrower must occupy the house as his or her primary residence. However, for a streamline loan, it’s only necessary that the borrower have previously lived in the home as a primary residence.

That means a VA streamline loan can be used to refinance an investment property.

The borrower can be using the property to generate rental income, and be living somewhere else, as long as the borrower used the house as a primary residence at some point.

What Are Today’s Rates?

The VA streamline loan program is an important part of the lineup of VA financing options.

Get a rate quote for this low-documentation, low-cost way to refinance out of a higher payment. Quotes are available in minutes, and don’t require a social security number to start.

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

Mark Henricks
Authored By: Mark Henricks
The Mortgage Reports contributor
Mark Henricks writes about finance, business and other topics. His articles have appeared in The Wall Street Journal, The Washington Post, The New York Times and many other publications.