VA loans make it possible for countless Veterans to pursue affordable homeownership.
However, even when you secure your home with a VA loan, that doesn't mean rates can't change for the better. When that happens, you might wonder if you can refinance to a better rate. The VA makes it easy with its Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA streamline refinance.
A VA IRRRL allows current VA loan customers to:
Additionally, these streamlined loans often come with less paperwork and fewer steps. In some cases, Veterans may not need an appraisal or even credit underwriting for an IRRRL.
VA streamline refinances are available only to Veterans with active VA mortgages. Veterans don’t need to occupy the home as their primary residence to be eligible, either. But there are requirements related to how long you’ve had the current loan and how many monthly payments you’ve made.
Despite the easier process, like all loans, VA streamlines typically come with closing costs. VA IRRRL closing costs usually add up to around 1% to 3% of your total loan amount but can vary by lender and other factors.
Here's a quick look at VA streamline refinance closing costs you can expect to pay:
|VA IRRRL Closing Cost||Estimated Amount|
|Title Insurance||0.5% to 1%|
|VA Funding Fee||0.5%*|
*Some Veterans are exempt from paying the VA Funding Fee.
Note: Actual closing cost amounts vary by lender.
VA loans are not actually funded or serviced by the Department of Veterans Affairs. The VA backs, or guarantees, the loan, but a lender originates and services it. Your lender may charge an origination fee for this service, and this is one of your main VA IRRRL closing costs. This may be a flat fee or an itemized total for services such as document preparation, application processing and tax services.
These charges vary by lender, but the VA caps the total fee at 1% of the total loan amount for all VA loans. So, if you're refinancing a $250,000 loan, you'll pay no more than $2,500 for your origination fee.
The VA allows borrowers to pay discount points at closing to reduce their interest rate. Typically, one discount point costs 1% of your loan amount and reduces your rate by around 0.25%.
Purchasing discount points will cost you more upfront but can ultimately save you money down the road.
There's one important caveat with discount points on VA IRRRLs, though: You might be able to finance up to two discount points into the new loan. We'll look at other rules for rolling your closing costs into your VA IRRRL below.
As is the case with an existing VA loan, you'll typically pay your property taxes and homeowners insurance premium through an escrow account. This means a portion of your monthly payment goes into an account with your lender, and they pay your local tax agency and insurance company each year when the annual payment is due.
At closing, your lender will collect a portion (or all) of that year's escrow account upfront. Ultimately, the lender decides how much cushion they require, but you'll usually pay between six and 12 months of taxes and insurance. The good news is, since you're refinancing, you may also get any money you've paid into your existing escrow account back after you close your current loan.
Another common VA loan refinance closing cost is your title insurance fee. This covers your lender and you in case there are any issues with ownership claims about your property.
Lender's title insurance is required, and owner's title insurance is recommended for your protection so you don't end up losing ownership and still having a loan. Purchased together, these usually add up to between 0.5% and 1% of your total sale price.
If your home is on or near a flood plain, your lender will want an official assessment to determine whether you need flood insurance to protect your home. This flood zone certification usually only costs $15–$25, but it will raise your insurance costs if your lender determines you need to add flood protection.
Another VA streamline closing cost your lender may require is an environmental endorsement, which is an add-on to the lender's title insurance. This protects your lender from any potential liens the government may place against the property for enforcing the cleanup of any hazardous waste or materials. The cost of this endorsement varies by lender.
Recording fees cover the costs levied by any government agency involved in securing your loan and transferring property ownership. These are required to ensure you legally own the property. These fees typically average $125 nationally.
Some lenders charge you for the costs of transporting mortgage documents via FedEx, USPS or UPS. If your lender does charge them, these fees are usually minimal. They'll typically add around $30 to your total VA IRRRL closing costs.
All VA loans require a VA funding fee, which helps to offset the costs of providing these mortgages with no down payment or monthly mortgage insurance requirements. On a VA streamline refinance, the funding fee is only 0.5% of your total loan amount — much lower than it was for your initial purchase loan. That means for a $200,000 refinance, you'd pay a $1,000 funding fee. Veterans receiving compensation for a service-connected disability and select others are exempt from this fee.
You don't have to pay all VA IRRRL closing costs upfront. VA streamline refinances allow borrowers to finance all of their closing costs into their loan.
This is a nice benefit, as with a VA purchase loan you can only roll in the VA funding fee. There are some limits when it comes to financing your VA IRRRL closing costs , however:
Lenders may have additional guidelines regarding seasoning periods, fee recoupment and closing costs.
A VA streamline refinance can be a great, quick way to get into an interest rate or monthly payment that better fits your financial situation. They do come with some costs, but these are generally fairly reasonable compared to some other refinancing options.
To decide whether the costs are worth it, get in touch with a VA loan lender to see if a VA IRRRL is the right option for you.