VA Handbook Chapter 6: Refinancing Loans Explained in Plain English

Last reviewed: October 6, 2026
Primary source: VA Pamphlet 26-7 (VA Lenders Handbook), Chapter 6: Refinancing Loans, as published on the VA’s official KnowVA Knowledge Base, supplemented by the two official VA circulars that overhauled the refinance rules in 2019: Circular 26-19-05 (cash-out refinances, February 14, 2019, effective for applications on or after February 15, 2019) and Circular 26-19-22 (IRRRLs, August 8, 2019, with Change 1 dated July 24, 2020). The chapter’s five topic texts carry Change Date April 10, 2009 (Change 11); the chapter text below was verified against complete verbatim copies linked in the Sources section.

How this post works: We go through Chapter 6 in the VA’s own order, all five topics. For each section: what the handbook says (with direct quotes in the blue boxes), what that means in plain English, and where lenders commonly add their own requirements on top of the handbook. Because the refinance rules changed significantly in 2019, each topic also notes where the newer federal rules replaced the older chapter text. The story boxes are illustrations based on situations I see in my pipeline. Names and identifying details are changed, and no story describes any one borrower’s file.

Read this first (the three sentences that matter most)

One: an IRRRL only refinances an existing VA loan. It cannot pay off a conventional, FHA, or USDA loan, and it cannot give you cash out. Two: since 2019, VA-to-VA refinances carry federal rules on seasoning (210 days plus six payments), fee recoupment (36 months), and minimum rate drops. These come from Congress and VA, not from your lender, so they apply everywhere. Three: a cash-out refinance is a completely different product from the IRRRL. It can pay off any lien and hand you cash, but it needs a full appraisal, full credit underwriting, and must pass at least one of eight net tangible benefit tests.

The rest of this article separates what VA actually requires from what individual lenders add on top. Now here is the whole chapter, in order.

Topic 1: Interest Rate Reduction Refinancing Loans (IRRRLs)

What this section says

Topic 1 then sets the rate and payment rules. On the rate:

On the payment:

On what the loan can and cannot do with the money:

The topic also covers the maximum loan amount (the existing VA loan balance, including any late payments and late charges, plus allowable fees and charges including up to two discount points, plus the cost of any energy efficiency improvements, plus the VA funding fee), calculated on VA Form 26-8923, the IRRRL Worksheet. Two limits: while the borrower may pay any reasonable amount of discount points in cash, only up to two discount points can be included in the loan amount. And on entitlement:

The remaining subsections: the maximum loan term is the original term of the VA loan being refinanced plus 10 years, but not to exceed 30 years and 32 days. The IRRRL must replace the existing VA loan as the first lien on the same property, and the borrower cannot pay off other liens from the proceeds. Generally the parties obligated on the original loan must be the same on the new loan, and the veteran must still own the property (a table of ten obligor-change cases walks through who can and cannot get an IRRRL, including divorce and death scenarios). For occupancy, the veteran or the spouse of an active servicemember must certify prior occupancy, not intent to occupy. On credit underwriting:

Finally, processing: any lender, with or without automatic authority, can close an IRRRL automatically in any geographic location (the delinquent-loan exception goes to prior approval, which is Topic 2). The veteran signs a statement acknowledging the effect of the refinance on payments and rate, showing how long it takes to recoup all closing costs. A borrower with a recent Chapter 13 bankruptcy may need the trustee’s approval for the new loan.

What the 2019 circular added to Topic 1

The chapter text above is the pre-2019 version. VA Circular 26-19-22 (August 8, 2019) consolidated the post-2018 law changes for IRRRLs, and it now sits on top of this topic. It comes from Congress: Section 309 of Public Law 115-174 (the Economic Growth, Regulatory Relief, and Consumer Protection Act), codified at 38 U.S.C. 3709, with seasoning updated by Public Law 116-33 (the Protecting Affordable Mortgages for Veterans Act of 2019). Four requirements:

1. Fee recoupment (36 months).

2. Net tangible benefit (minimum rate drops).

There are special discount-point rules for fixed-to-ARM cases: the lower rate generally cannot be produced solely from discount points, with exceptions tied to the resulting loan-to-value (100% or less with one point or less added, 90% or less with more than one point added). And the two-point cap on discount points included in the loan amount still applies.

3. Loan seasoning.

4. Disclosure (twice). The lender must present the veteran with a comparison statement (loan amounts, term, monthly payment, interest rate, borrower names, and the recoupment period in months) within 3 business days of the application and again at closing, so the veteran sees the overall cost of the refinance before deciding.

What that means

The IRRRL is VA’s version of a streamline refinance: same borrower, same house, same VA loan being replaced, just better terms. Because the old loan already qualified, VA normally skips the appraisal and the credit review. That is why it is fast and cheap compared to a regular refinance.

But “streamline” does not mean “anything goes.” The rate must drop (unless you are refinancing an ARM), and the payment must drop unless you are shortening the term, refinancing an ARM, or adding energy improvements. No cash comes out. The term can stretch at most ten years beyond the original, capped at 30 years and 32 days. And your entitlement is untouched: the IRRRL reuses what was already committed to the old loan.

The 2019 rules are the ones that surprise people. The 36-month recoupment test means the deal has to pay for itself within three years through the lower payment. If the payment is not going down at all, the veteran must incur no closing costs. The seasoning rule means you cannot refinance a brand-new VA loan: 210 days from the first payment due date and six consecutive payments made, both. And the disclosure you sign twice is there so you see the real math, including the total cost of the refinance, before you commit.

Where lenders add overlays

This topic is overlay central, and it is worth learning the difference between the federal rules above and the lender rules below.

• Credit score minimums. VA requires no credit score on an IRRRL. Many lenders impose their own minimums anyway. Published lender program matrices show minimums varying by loan size (for example, tiered overlays of 550, 620, or 700 depending on the loan amount), and they are the lender’s policy, not the handbook’s.
• Stricter seasoning. Some lenders require twelve months of seasoning before they will do an IRRRL, which is double VA’s six-payment rule. That is an overlay.
• Appraisals and AVMs on a “no appraisal” product. VA does not require an appraisal for an IRRRL (except fixed-to-ARM cases with discount points). Some lenders run automated valuations or full appraisals anyway, as their own policy.
• No-cash-back interpretation. The handbook allows minor adjustments at closing (computational errors, payoff figure changes, escrow refunds). VA does not set a ceiling, but advises consulting VA if the veteran receives more than $500. Some lenders apply a hard $500 or lower cap of their own.
• Payment-increase underwriting. VA only requires underwriting when the PITI payment increases by 20% or more (or the loan is delinquent). Some lenders require full underwriting on every IRRRL regardless.

The pattern: the handbook and the circulars set floors, and lenders build their own ceilings. When a lender says “VA requires” on one of these, ask to see where. If it is not in this chapter or the two circulars, it is the lender’s rule.

Illustration based on situations I see in my pipeline.

Topic 2: IRRRL Made to Refinance a Delinquent Loan

What this section says

This is the one IRRRL that cannot be closed automatically. The lender submits a written proposal to VA with seventeen items, including: the names of all parties obligated on both loans, the VA loan number and origination date, the proposed loan terms versus the old terms, the discount points, the veteran’s signed acknowledgment of the payment and rate effects (with the recoupment period), the occupancy certification, the IRRRL worksheet (VA Form 26-8923), the COE or a request for one, the loan application (URLA), an explanation of the reasons for the delinquency with documentation, documentation that the cause has been corrected, a credit report, a current pay stub with telephone verification of employment, the loan analysis (VA Form 26-6393), and energy improvement documentation if applicable.

VA then informs the lender of its decision, and the lender may close the loan in reliance on a VA-issued Certificate of Commitment. The loan must be reported to VA within 60 days of closing with the full documentation package. One more provision matters for the math:

What that means

Being behind on your VA loan does not automatically disqualify you from a streamline refinance, but it changes the lane you are in. Instead of the lender closing it on their own authority, VA itself reviews the file before closing. The lender has to prove two things: whatever caused the missed payments is fixed, and you can afford the new payment. Rolling the missed payments and late charges into the new loan is allowed, but there is a catch the handbook states plainly: the bigger those rolled-in amounts, the higher the new payment, and at some point the refinance stops helping the veteran.

Notice the structure. This topic is not a punishment for being late. It is a second look, with full underwriting (credit report, pay stub, employment verification, loan analysis) that the standard IRRRL skips. The veteran’s signed acknowledgment of the payment effects and recoupment period is still required, and the 2019 seasoning, recoupment, and disclosure rules apply here too.

Where lenders add overlays

Most lender-added friction on this topic is really lenders declining the product. Many lenders do not offer delinquent-loan IRRRLs at all, or they require the loan to be brought fully current before they will even discuss one. That is a business decision, not a handbook requirement: the handbook explicitly provides the prior-approval path for loans that are 30 days or more past due. Some lenders also layer on minimum credit scores or maximum delinquency depths (for example, refusing anything beyond 60 or 90 days late) that do not appear in the chapter. If your loan is delinquent and one lender will not touch it, the handbook’s own procedure is the reason a second lender might.

Let me be direct about how rare this is in practice: refinancing a delinquent VA loan almost never happens, because lenders do not want the risk. The handbook provides the path, but finding a lender willing to walk it is the hard part. Most will tell you to bring the loan current first, and many will not offer the product at all. If you are past due on your VA loan, your best first move is not shopping for a refinance. Call the VA Regional Loan Center at (877) 827-3702 and ask about your options. They handle delinquent VA loans every day and can walk you through loss mitigation, repayment plans, and whether a refinance is even realistic for your situation.

Topic 3: Cash-Out Refinancing Loans

What this section says

The chapter’s core mechanics: the veteran must have sufficient available entitlement (if an existing VA loan on the same property is being paid off, that entitlement can be restored for the new loan). The veteran must certify intent to personally occupy the property. Loan processing is virtually the same as for non-refinancing loans: a full appraisal, credit information, and underwriting are required. Only lenders with automatic authority can close cash-out refinances automatically. At closing, the veteran signs a statement showing the cash proceeds paid, an itemization of debts paid from the proceeds, and the identification of the debts secured by liens of record.

The 2019 overhaul. This is where the chapter changed the most. VA’s interim final rule (December 17, 2018, effective February 15, 2019) and Circular 26-19-05 (February 14, 2019) rewrote the cash-out rules under the same Section 309 of Public Law 115-174 that changed IRRRLs. The circular applies to cash-out refinance applications taken on or after February 15, 2019, and loans that do not meet the requirements may be subject to indemnification or removal of the guaranty. The key provisions:

1. Two types of cash-out, defined by the loan amount.

2. The 100% loan-to-value ceiling, funding fee included.

This replaced the older rule that allowed 100% of value plus the funding fee on top.

3. The net tangible benefit test (eight ways to pass).

4. Disclosures, twice. The lender must give the veteran a loan comparison disclosure (new loan versus existing loan: amounts, rate, type, term, total payments, LTV, remaining equity) and a home equity disclosure (how much equity is being removed, and how that affects future sale or refinance), both within 3 business days of application and again at closing. The borrower must certify receipt of both, each time.

5. Seasoning (VA-to-VA only).

This seasoning rule applies to cash-out loans refinancing a VA-guaranteed loan. VA does not impose seasoning when the loan being refinanced is not a VA loan (though many investors and Ginnie Mae do, which is an overlay, not a VA rule).

6. Fee recoupment (Type I only).

The recoupment period is the total fees divided by the monthly principal-and-interest savings. Type II cash-outs (where you are actually taking cash) are not subject to the recoupment test, but they are subject to everything else above.

What that means

The cash-out refinance is VA’s full-featured refinance. Unlike the IRRRL, it can pay off any loan (your conventional mortgage, an FHA loan, even tax or judgment liens) and hand you the difference in cash for anything the lender finds acceptable: debt consolidation, home improvements, whatever you need. But it is underwritten like a purchase: full appraisal, full credit review, full income review.

The 2019 rules are Congress’s answer to loan churning, the practice of refinancing veterans over and over to harvest fees. Type I is VA’s name for what the industry calls a rate-and-term or no-cash-out refinance of a VA loan: the new loan is not bigger than the payoff, and it has to pay for itself within 36 months, the rate has to drop (50 basis points fixed-to-fixed, 200 fixed-to-ARM), and the old loan has to be seasoned. Type II is the real cash-out: bigger than the payoff, so no recoupment test, but it must pass at least one of the eight net tangible benefit tests, and the VA-to-VA seasoning rule still applies.

Two disclosures deserve your attention as a borrower. The loan comparison shows the new loan next to the old one, including the total of all payments you will make under each. The home equity disclosure shows how much equity you are pulling out and warns you, in plain terms, how that affects your ability to sell or refinance later. You get both at application and again at closing, and you sign for both. Read them. They are the single best anti-churning protection in the whole process.

Where lenders add overlays

• LTV caps below 100%. VA allows up to 100% of the appraised value including the funding fee. Many lenders cap cash-outs at 90%, or even 80%, as their own policy. That is an overlay, and it is the most common reason a veteran with limited equity gets told “no” on a cash-out.
• Credit score minimums. VA sets no minimum credit score for a cash-out (the file is underwritten on the whole picture, per Chapter 4). Lenders routinely set their own minimums.
• Seasoning beyond VA’s. VA imposes no seasoning when the loan being refinanced is not a VA loan. Many lenders and investors (including Ginnie Mae) require the 210-day/six-payment seasoning on every cash-out regardless, which is an investor overlay, not a VA rule.
• Cash-out purpose restrictions. The handbook says cash proceeds may be used “for any purpose acceptable to the lender.” Some lenders narrow that themselves, for example restricting cash-out for investment purposes or capping cash back.
• Residual income and DTI overlays. VA underwrites on residual income first (Chapter 4). Lenders often add hard DTI caps or higher residual-income thresholds on cash-outs specifically.

Illustration based on situations I see in my pipeline.

Topic 4: Quick Reference Table for IRRRLs Versus Cash-Out Refinancing Loans

What this section says

The handbook’s own side-by-side comparison, reproduced here in full. Two notes before you read it: this table carries the 2009 change date, so a few cells have been overtaken by the 2019 rules (I have marked them below the table). And where the original says “No requirement” for cash-outs, the 2019 net tangible benefit test now applies.

Source: VA Lender’s Handbook (Pamphlet 26-7), Chapter 6, Topic 4 (verbatim copy of the official chapter text; cells marked * are superseded or supplemented by the 2019 rules as noted below)

Where the 2019 rules changed this table:

• Interest rate (cash-out): for a Type I cash-out refinancing a fixed-rate VA loan, the new rate must drop by at least 50 basis points (fixed-to-fixed) or 200 basis points (fixed-to-ARM). “Any negotiated rate” no longer holds there.
• Monthly payment (cash-out): the net tangible benefit test now requires at least one of the eight benefit tests to be met on every cash-out.
• Maximum loan (cash-out): the funding fee is now inside the 100% LTV ceiling. The loan, including any financed funding fee, cannot exceed the reasonable value of the property.

What that means

This table is the chapter’s cheat sheet, and it is the fastest way to decide which product fits. If the answer to “is the existing loan a VA loan?” is no, the IRRRL column does not apply to you. If the answer to “do you want cash out or need to pay off a non-VA loan?” is yes, you are in the cash-out column. The two columns share almost nothing except the first lien and the veteran-ownership requirements.

The 2019 corrections above are why I am not just republishing the table and moving on. The chapter’s 2009 text is still the framework, but Congress added tests the table never had. Read the table for the structure, then apply the Topic 3 rules for the current cash-out requirements.

Where lenders add overlays

The table itself invites overlay confusion, because it reads like a complete rulebook and is not. The most common: lenders treat the table’s “No appraisal is required” and “No underwriting is required except in certain cases” as the whole IRRRL story, then apply their own overlays (credit score minimums, AVMs) without mentioning that VA’s actual requirements are lighter. On the cash-out side, lenders add LTV caps and score minimums that do not appear in the table at all. The table shows VA’s minimums; the lender’s minimums are a separate document you will never see.

Topic 5: Other Refinancing Loans

What this section says

What that means

This is the chapter’s catch-all drawer for refinances that are neither IRRRLs nor cash-outs. Three situations: you built a home with a construction loan and now need the permanent VA financing (the classic construction-to-perm), you bought under an installment land sale contract (a “contract for deed”) and want to refinance it into a VA loan, or you assumed someone’s loan at a higher rate and want to refinance it down.

The math is conservative: the loan is the lesser of the property’s reasonable value plus the funding fee, or the old loan balance plus allowable closing costs and discounts. Energy efficiency improvements can be added. And note the guaranty cap: $36,000 on these loans, which is the old basic-entitlement figure, not the larger guaranty available on regular cash-out refinances. These are niche products, and the chapter gives them exactly one page.

Where lenders add overlays

On this topic, the overlay is usually the lender not offering the product at all. Construction-to-perm VA refinances, land contract refinances, and assumed-loan refinances are rare enough that most lenders have no process for them and simply say no. That is a capacity decision, not a handbook rule. If you are in one of these three situations, you are shopping for a lender with the specific program, not just a VA-approved lender.

Illustration based on situations I see in my pipeline.

Frequently asked questions

These are the questions Chapter 6 itself answers: what the IRRRL does and does not do, what changed in 2019, and how the cash-out works. If your question is about your specific situation, the quiz link above is the fastest way to get an answer.

What is the difference between an IRRRL and a VA cash-out refinance?

The IRRRL (Topic 1) refinances an existing VA loan only, with generally no appraisal and no credit underwriting, and it cannot give you cash out. The cash-out (Topic 3) can pay off any type of lien (VA, FHA, conventional, tax or judgment liens) and can hand you cash, but it requires a full appraisal, full credit and income underwriting, and must pass at least one of eight net tangible benefit tests. Topic 4’s table puts them side by side.

Can I use an IRRRL to refinance my conventional or FHA loan into a VA loan?

No. Topic 1: “An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan.” Refinancing a non-VA loan into a VA loan is a cash-out refinance (Topic 3), which can refinance “any type of lien or liens against the secured property,” with full appraisal and underwriting.

How soon after closing can I refinance with an IRRRL?

Not immediately. Under Circular 26-19-22, the loan being refinanced must be seasoned as of the new closing date: the due date of its first monthly payment must be at least 210 days before the new closing date, and six consecutive monthly payments must have been made. This is federal law (38 U.S.C. 3709), not a lender overlay, so no lender can waive it.

How much does the rate have to drop on an IRRRL?

For a fixed-rate loan refinanced into another fixed-rate loan, the new rate must be at least 0.50 percent (50 basis points) lower than the old rate. For a fixed-rate loan refinanced into an adjustable-rate loan, the new rate must be at least 2 percent (200 basis points) lower. There are special discount-point limits for the fixed-to-ARM case. (Circular 26-19-22, paragraph 3.b.)

What is the 36-month recoupment rule?

For an IRRRL with a lower monthly payment, all fees, closing costs, and expenses (excluding taxes, escrow, and the VA funding fee) must be recouped through the lower payment within 36 months of closing. If the payment is not going down, the veteran must incur no closing costs at all. Type I cash-out refinances have the same 36-month test. (Circular 26-19-22, paragraph 3.a; Circular 26-19-05, paragraph e.)

Can I get cash out with an IRRRL?

Generally no. Topic 1: “the borrower cannot receive cash proceeds from the loan,” and the loan amount is rounded down if needed to avoid it. The one exception is reimbursement of up to $6,000 for energy efficiency improvements completed within the 90 days before closing. Minor closing adjustments (payoff figure changes, escrow refunds) can also result in small cash to the borrower; VA advises consulting VA if it exceeds $500.

Does an IRRRL use up more of my entitlement?

No. Topic 1: “No additional charge is made to the veteran’s entitlement for an IRRRL.” Your entitlement stays exactly where it was before and after the refinance. (The guaranty amount on the new loan can differ from the old one, but that does not change your entitlement use.)

Do I need an appraisal or a credit check for an IRRRL?

VA requires neither, with two exceptions: the loan being refinanced is 30 days or more past due (Topic 2, prior approval with full underwriting), or the monthly PITI payment will increase by 20% or more (then the lender must verify you qualify for the higher payment). That said, many lenders add their own requirements (credit score minimums, valuations), which are lender overlays, not VA rules.

What is a Type I versus a Type II cash-out refinance?

VA’s 2019 definitions: a Type I cash-out is a refinancing loan where the new loan amount (including the VA funding fee) does not exceed the payoff amount of the loan being refinanced. A Type II cash-out is one where the new loan amount exceeds the payoff. Type I loans face the 36-month recoupment test and the 50/200 basis point rate-drop rules when refinancing a VA loan; Type II loans skip recoupment but must still pass the net tangible benefit test, the disclosures, and (for VA-to-VA) the seasoning rule. (Circular 26-19-05.)

How much can I borrow on a VA cash-out refinance?

Up to 100% of the property’s reasonable value as determined by the VA appraisal, with the VA funding fee included inside that 100% (it cannot push the loan over the value). Many lenders cap cash-outs below 100% as their own overlay. Energy efficiency improvement costs can also be added.

What is the net tangible benefit test?

The 2019 requirement that every cash-out refinance must benefit the veteran in at least one of eight ways: eliminating monthly mortgage insurance, shortening the term, lowering the rate, lowering the principal and interest payment, increasing residual income, paying off an interim construction loan, keeping the LTV at or below 90%, or refinancing an ARM into a fixed-rate loan. The lender must also give you a loan comparison disclosure and a home equity disclosure twice: within 3 business days of application and again at closing. (Circular 26-19-05, paragraph c.)

Can I refinance if I am behind on my VA mortgage?

Yes, through Topic 2’s prior-approval path. Any IRRRL on a loan that will be 30 days or more past due at closing must be submitted to VA for prior approval. The lender must show the cause of the delinquency is resolved and that you can afford the new payment, with full underwriting (credit report, pay stub, employment verification). Late payments and late charges can be rolled into the new loan.

Do I have to live in the home to refinance it?

For an IRRRL, no. You (or the spouse of an active servicemember) must certify that you previously occupied the property as your home. For a cash-out refinance, you must certify that you intend to personally occupy the property as your home. (Topics 1 and 3; Chapter 3 covers occupancy in detail.)

What are “other refinancing loans”?

Topic 5’s catch-all: refinancing construction loans, installment land sale contracts, and loans assumed by veterans at higher interest rates. The loan cannot exceed the lesser of the reasonable value plus the funding fee, or the old balance plus allowable closing costs and discounts, and the maximum guaranty is $36,000.

Related reading

As of October 2026 the 2018 cash-out rule is still interim final, and VA’s IRRRL rule is still a proposal (RIN 2900-AR58, at Final Rule Stage). The binding requirements live in the statute (38 U.S.C. 3709) and the 2019 circulars.