VA IRRRL Explained

Lower your monthly payments, apply in minutes with no appraisal, no income documentation, close in 14 days or less, and skip a payment—maybe even two! What am I even talking about?

VA loan streamlined refinances.

By their long-term name, they’re called Interest Rate Reduction Refinance Loans, but we like to simplify that to your favorite Uncle IRRRL.

Why Uncle IRRRL?

We all wish we had a rich uncle.

The good news is, if you happen to have a VA loan, you kind of do, because Uncle IRRRL here allows you to do those four things that I just talked about.

Oh, and on top of that, if you’re worried about your credit—we just had a call about that earlier today—we can really get it all done with a soft pull, not even a hard credit pull.

Now, VA loans by law were meant to really help support veterans and active duty military families moving around the country to purchase a home.

They were also created with that VA streamlined refinance ability to make them really attractive, helping veterans and active duty members refinance if or when rates came down.

Good news is, we’ve seen periods where people purchase at a higher rate, and then all of a sudden, maybe 12 months or a couple of years later, because you can apply and do one within 210 days of your first payment (or within 9 months or so), rates drift down a little bit, and they can take advantage of it very easily.

You don’t have to do a lot of the things that you would on a traditional conventional appraisal. These VA IRRRLs are very powerful. We’ve worked a lot of those for folks to really help reduce those monthly payments and also give them some help to do other things in the near future without giving up the ability to do it again.

Now, VA IRRRLs are really important to start looking at during the whole life cycle of your loan.

So, once you’re under contract and you close on your home, know that the IRRRL is the next step that you should have being looked at by your lender in the future.

For us, we track that very closely.

Working with all of our clients, we have our own system built to automatically track and notify clients when they are eligible for a VA Streamline Refinance.

Now, just because you’re eligible doesn’t necessarily mean that you should do the refinance.

You want to look at the numbers for that, so it’s important to get a lot of evaluation—or, I should say, get a couple of scenarios of how that could look.

And there are a few major things that we see for folks—or, I should say, a few major scenarios that people look at when they’re doing a VA Streamline Refinance. It really kind of comes down to, as I tell people:

1. How long are you going to have the home?
2. Do you really care more about the monthly payment coming down, or do you care about keeping your loan balance the same?

Why do I ask those things?

Because a VA IRRRL is really unique in that it also allows you to roll costs into the loan if you want to.

So, VA IRRRLs are typically very affordable across the country. There are a couple of states where taxes can get a little expensive, but if the rate drops significantly, it can still make sense.

But the deal is, the VA will allow you to roll those costs into the new VA IRRRL if you want to.

However, that’s not necessarily a smart idea if, let’s say, you’re selling the home in just another year or two.

So, if the costs are, say, $3,000 and you’re going to sell the home in just a year, and you’re only saving $100 a month, well, when you go to sell, your balance is $3,000 higher. You only saved $1,200 over the course of the last year, so you’re technically under on that deal.

You want to make sure that it still makes sense.

Now, the good news is, it typically does—especially if interest rates are coming down well over half a percent. I like to give those two scenarios that I tell folks:

1. The highest monthly payment you can get back is where you generally might have some small cost to it that you can roll into the loan, and you usually get the biggest monthly return on your payments, meaning you can bring down your payment by the most.
2. Or, if rates have come down enough, there’s the option and possibility with a VA IRRRL where you can take a slightly higher lower rate. So, meaning that if you are up here at a 7% rate, rather than taking a 5.5% rate (if that’s where rates were at the day you get a new refinance), maybe you take a 6% rate.

When you take a little higher rate, sometimes we as a lender can give you a credit for that—the same way that if you’re going to buy a home, you might have heard the term “buy-downs” or “buying points” to get a lower rate, meaning you pay money upfront to get a lower rate.

You can also take a higher interest rate and get money back to you—a credit. So, with refinances, there’s this unique thing that you can do, and that’s where, rather than taking a super low reduction, you can still take a good reduction and get a credit to help you cover all the costs.

That’s why I like to say it’s truly a free lunch. It’s the “no-brainer” option, as we sometimes refer to it, because if you can get the cost covered to where your loan balance is staying the same (or a slight adjustment, maybe because property taxes changed or whatever it is—there are some nuances to that), but let’s say your loan balance stayed the same from a principal perspective for you and your rate still came down and you saved $300 a month or whatever it is—it’s obvious that that’s a good deal overall, even if you’re going to turn around and maybe sell here in the near future, because that gives you the opportunity to still lock in those savings.

Now, if you’re worried, like, “Well, Evan, I just don’t know. I want to make sure if rates go lower, I don’t miss out.” The beautiful thing about these VA Streamline Refinances is you’re eligible again after you close it out.

You’re eligible again in another 210 days after that first payment.

So, the same VA timeline requirements that you had in the beginning, you have again once you do the Streamline Refinance.

Now, the VA tries to help protect veterans and active duty members to make sure that these deals are worthwhile for them. So, there are three major stipulations they put in place:

1. You have to pull down your rate by at least half of a percent, so that helps make sure you’re getting some savings on your interest rate.
2. On top of that, because someone could charge you a whole bunch of points (meaning charge you a whole bunch of money to get a lower rate), they say, “Hey, you need to recoup your costs within 36 months”—called a recoup period. Now, that excludes any VA funding fee if you happen to be active duty or don’t have VA disability compensation—it excludes that, but it includes all the costs of the loan from the lender, from taxes, title, all that kind of stuff. They say, “Hey, you need to make sure you recoup that cost within 36 months.” Personally, I say you want to see it well under that 36 months, but at least in general, that helps reduce the risk of paying a whole lot of money for a lower rate.
3. They want to make sure you have had that loan (or I should say, you don’t close on the new one, the new VA IRRRL) for at least 210 days past your first payment. You’ve got to successfully make six payments—210 days from that first payment is effectively when we close most all our VA IRRRLs if it looks like it makes sense.

So, they have those three things in place to help protect veterans and active duty service members. So, if you’re looking at an IRRRL, there’s already some of that protection built in.

But when we look at those numbers, it can sometimes make a big difference if you’re taking that lower rate versus taking that credit. That’s why it’s important that we help give you those options and show you what you can work with.

So, know that there’s no cookie-cutter option either for how to do these refinances because you can structure them in multiple different ways.

But overall, if you’re hearing rates have come down, or you happen to log onto our system—we’re the only ones I’m aware of out there that have our Rapid Refi tool, we call it, where it’ll automatically notify you when rates have come down to the point that you can actually do a VA IRRRL.

All you’ve got to do is put in your interest rate when you closed on the home, give us your location, and, of course, your email for it, and we can let you know when you’re eligible.

But once you know that, you’ve just got to make sure you get those examples, review them, and know that the process overall is very simple.

No income documentation.

No appraisal.

Typically, for us, the main things we need from clients are their most recent mortgage statement, a photo ID, and you’ve got to knock out a basic application.

Again, for us, it’s to refinance—it takes most folks less than five minutes, and off to the races we go.

And the cool other feature is, if we’re going along the way and we’ve even locked in your interest rate (meaning you know what you’re getting), and all of a sudden something changes and you’re like, “Oh no, Evan, I just can’t do this,” or “You know, I’m not feeling as good about it,” cool! We can always kill it and go on our way just fine.

It’s not like you’re locked in until you actually do that final signing and closing.

That’s one of the cool things about these VA Interest Rate Reduction Refinance Loans: if, for some reason, you lock it in and have an issue, you can always adjust and wait until later as well.

Hope this helped just give a little background on the VA IRRRL, the Streamline Refinance.

We love doing these for our folks. We specifically track it for all of our clients because, again, we have what we like to call our client 20-year vision, where we help see our military families that we work for have a paid-for or nearly paid-for home by retirement.

Think of it as having some kind of financial security and independence.

And one cool thing about these refinances is it allows all of our clients to actually recapture some of their monthly income that they can then use to either apply to pay that home off early or use it to invest and build that nest egg to help give them security once they retire.

So, these really mean a lot to us—that’s why we track them closely, and we make sure we notify our clients when the opportunities are available.

My name is Evan Kaufman—take care.