What Are the Benefits of a VA Streamline?
There are a great deal of benefits associated with the VA streamline refinance option. Some of these benefits come hand in hand with it simply because it is a “streamline” refinance. Other benefits come from the specific policies and terms the VA has in place to make the streamline refinance a more attractive option for more borrowers. The VA’s streamline refinance is called an Interest Rate Reduction Refinance Loan (IRRRL), and we will use that acronym to refer to it in the rest of this article. While there are many benefits to the IRRRL, there are also many situations for which it is not appropriate. We’ll be focusing more on the benefits in this article, but feel free to read some of our other articles on the IRRRL.
As mentioned above, most of the benefits that come with an IRRRL come by virtue of it being a streamline option. The first major benefit is that an IRRRL is wickedly fast – being able to be completed in as little as 10 days. Compared to the 30-45 day average for new purchase loans and standard refinances, an IRRRL is done and closed before you can blink. An IRRRL is also relatively painless compared to normal refinances; when you get an IRRRL, you will not be required to verify your income, assets, or employment, which saves enormous amounts of time. You will also not be required to get a new appraisal of your home, which saves you both time and money. Being a streamline, the IRRRL is designed to make the process fast, easy, and cheap for you. In addition to all of the above benefits, there are also benefits to the IRRRL that the VA has implemented to make it more available and attractive to more borrowers.
In a normal refinance or new purchase loan, you cannot roll your closing costs into the loan amount (anyone who has ever had a conventional loan will not find this odd). This adds an extra obstacle to potential borrowers, however, since they already have to save up 20% for a down payment, then save up another $10k to cover closing costs. The VA loan program does much better at this by not requiring a down payment and having somewhat cheaper closing costs (except for the VA funding fee), but it still presents a major obstacle to those borrowers who could most use the lower interest and monthly payment that an IRRRL can offer them. This is why the VA allows the borrower to roll every dime of closing costs into the IRRRL rather than having them due upfront. The IRRRL is a true, no-money-down refinance option with no penalty (other than, of course, having to pay interest on the rolled amount just like the rest of the loan). In an IRRRL, you can roll the VA funding fee, and even up to two discount points into the loan amount.
Another cool thing about the IRRRL, is that it has a looser occupancy requirement. For a borrower trying to get an IRRRL, they simply have to certify that they previously occupied the property, rather than that they currently do. This is designed with active servicemembers in mind. Often, an active servicemember buys a house, then receives PCS orders and is required to move and try to sell their current house as quickly as they can. Many a servicemember has been hurt financially because of this situation. So, the VA decided that those servicemembers should be able to quickly (as little as 10 days) get an IRRRL to refinance their home so they can rent it out rather than have to sell it. This is a major boon to active servicemembers doing their best to make a good home for their families in spite of the oft-changing military life.
Lastly, the IRRRL does allow a borrower to take out an Energy Efficiency Mortgage (EEM) on top of their new loan. An EEM allows a borrower to take up to $6,000 to make energy efficient improvements to their home. The borrower will have to itemize the improvements they wish to make, and only the amount required to make the changes will be lent, but a lot can be done to improve a home for $6,000. There are numerous other little benefits that could be discussed, but we’ve covered the major ones here.