Veteran reviewing iQRATE Mortgages offer in Florida.

Florida's VA IRRRL 36-Month Recoup Rule Explained

Q: What is the VA IRRRL 36-month recoupment rule?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: Which costs are included in the recoupment calculation for a VA streamline refinance?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: Are prepaid expenses like taxes and insurance included in the 36-month recoupment test?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: How does the VA Funding Fee affect the recoupment calculation?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: How can I determine the monthly savings for a VA IRRRL?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: What is the purpose of the VA's 36-month recoupment rule?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: What should I do if a lender's loan offer does not pass the 36-month recoupment test?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

May 16, 2026

Specialized In Jumbo Loans, Investor Loans, DSCR Loans, Non-QM Financing, Commercial Mortgages, and Tax-Informed Lending Strategies

Published By

David Ghazaryan

Owner / Broker / Banker

Contact Me At

(702) 766-3744

NMLS 1486726

Let's Connect

TL;DR

The 36-month recoup rule ensures your VA IRRRL savings cover its closing costs within three years.
This non-negotiable Veteran Affairs protection prevents predatory lending and ensures a real financial benefit for veterans.
Understanding the calculation empowers you to verify lender offers in Jacksonville and avoid unfavorable refinance terms.

Understanding the VA IRRRL Recoupment Calculation

The Veteran Affairs Interest Rate Reduction Refinance Loan (IRRRL), often called a 'streamline refinance', is a powerful tool for veterans to lower their mortgage payments. To protect veterans from refinancing deals that offer little to no real benefit, the VA established a critical consumer protection: the 36-month recoupment rule. This rule mandates that all closing costs associated with the IRRRL must be 'recouped' or paid back by the monthly savings generated from the new, lower interest rate within 36 months.

If a refinance offer cannot meet this requirement, it is not a compliant VA loan. This guide breaks down the calculation step by step, empowering you to analyze any IRRRL offer from a lender in Jacksonville or Saint Augustine and confirm it serves your financial interests.

What Costs Are Included in the Recoupment Calculation?

First, it's essential to identify exactly which costs are part of the recoupment test. Not every charge on your Loan Estimate is included. The costs that must be recouped are all fees and charges paid to the lender and other third parties to close the loan.

Here’s a breakdown of what typically counts:

Lender Origination Fees: This is the primary fee charged by the lender for processing and underwriting your loan. It can be a flat fee or a percentage of the loan amount. (The data, information, or policy mentioned here may vary over time.)
Discount Points: These are fees paid directly to the lender at closing in exchange for a reduced interest rate. One point costs 1% of your loan amount. (The data, information, or policy mentioned here may vary over time.)
Third-Party Closing Costs: These are fees for services rendered by other companies involved in the transaction. This includes:
- Title insurance and settlement fees
- Recording fees paid to the county
- Credit report fee
- Any other required third-party services (The data, information, or policy mentioned here may vary over time.)
The VA Funding Fee: This is a mandatory fee paid directly to the Veteran Affairs department, which helps fund the VA loan program. For an IRRRL, it is a flat 0.5% of the loan amount for all veterans. Critically, if you finance the funding fee by rolling it into your new loan amount, its cost must be included in the recoupment calculation.

Certain items are excluded from the calculation. These are known as 'prepaids' and are not considered closing costs. They include funds to set up your new escrow account for property taxes and homeowners insurance. You would have to pay these expenses regardless of the refinance, so they aren't counted against the loan's benefits.

How to Calculate Your Monthly Savings

Calculating your monthly savings is the foundation of the recoupment test. It’s a simple, two-step process that compares your current mortgage payment to the proposed payment on the new IRRRL.

Step 1: Identify Your Current Principal & Interest (P&I) Payment Look at your current mortgage statement. Find the portion of your payment dedicated solely to principal and interest. Do not include any amounts for taxes or insurance, as these can change and are not part of the loan itself.

Step 2: Find the Proposed P&I Payment for the IRRRL Your lender will provide a Loan Estimate document for the proposed IRRRL. On Page 1, under 'Projected Payments', you will find the new principal and interest payment for the new loan.

Step 3: Calculate the Difference Subtract the new P&I payment from your current P&I payment. The result is your gross monthly savings.

Formula: (Current P&I Payment) - (New IRRRL P&I Payment) = Monthly Savings

For example, if your current P&I is $1,950 and the new IRRRL offers a P&I of $1,725, your monthly savings are $225.

A veteran reviewing financial documents for a VA IRRRL loan.

Does the Veteran Affairs Funding Fee Count Towards Total Costs?

Yes, in most cases. The VA funding fee is a significant closing cost, and its inclusion in the recoupment calculation is a common point of confusion. Here’s the rule:

If you finance the VA funding fee into the new loan balance, its total amount is added to the closing costs that must be recouped within 36 months.

For instance, on a $400,000 refinance, the 0.5% funding fee is $2,000. If you roll that $2,000 into the loan, it must be part of the total costs in your calculation.

There are exceptions. Some veterans are exempt from paying the VA funding fee, including those receiving VA disability compensation or surviving spouses of veterans who died in service. If you are exempt or choose to pay the funding fee in cash at closing instead of financing it, it is not included in the recoupment calculation.

Real-World Example: A 36-Month Recoup Calculation in Jacksonville

Let’s walk through a complete, realistic scenario for a veteran homeowner in Jacksonville, Florida, to see how the numbers work together.

Loan Scenario:

Current VA Loan Balance: $380,000
Current Interest Rate: 6.25%
Current Principal & Interest (P&I) Payment: $2,339

The Lender's IRRRL Offer:

New Interest Rate: 5.25%
Proposed Principal & Interest (P&I) Payment: $2,098

Step 1: Calculate Monthly Savings $2,339 (Current P&I) - $2,098 (New P&I) = $241 in Monthly Savings

Step 2: Calculate Total Costs to Recoup Now, we look at the closing costs on the Loan Estimate.

Lender Origination Fee: $1,495
Discount Points (1 point to get the 5.25% rate): $3,800
Title & Settlement Fees: $1,850
Recording & Other Fees: $400
VA Funding Fee (0.5% of $380,000, financed): $1,900

Total Costs = $1,495 + $3,800 + $1,850 + $400 + $1,900 = $9,445 (The data, information, or policy mentioned here may vary over time.)

Step 3: Perform the Recoupment Test Total Costs / Monthly Savings = Months to Recoup $9,445 / $241 = 39.19 Months

Result: This loan offer fails the 36-month recoupment rule. It would take over 39 months for the veteran's savings to cover the cost of the refinance. A reputable lender would not be able to proceed with this loan structure. The primary reason it fails is the high cost of the discount point.

Loan estimate document with key figures for a VA streamline refinance.

Can a Lender Charge Discount Points on a VA IRRRL in Jacksonville?

Yes, lenders in Jacksonville and across Florida are permitted to charge discount points on a VA IRRRL. Discount points are a form of prepaid interest where you pay a fee upfront to secure a lower interest rate for the life of the loan.

However, as shown in the example above, discount points are a major closing cost and are always included in the recoupment calculation. This can make it difficult for a loan with high points to pass the 36-month test. Veterans should be cautious of offers that advertise a very low rate but require paying one or more discount points. It is crucial to run the recoupment calculation to determine if the cost of those points provides a true net tangible benefit within the VA's required timeframe.

How This Rule Protects Veterans From Predatory Lending

Before the 36-month rule was firmly established, some lenders engaged in a practice known as 'loan churning'. This involved repeatedly convincing veterans to refinance their loans, often with only a minuscule improvement in their interest rate. The lender would profit from the fees on each new loan, while the veteran saw little to no financial gain because the closing costs effectively erased any savings.

The 36-month recoupment rule makes this practice impossible. It forces the financial equation to be heavily weighted in the veteran’s favor. For an IRRRL to be approved, it must provide a net tangible benefit that is mathematically proven. It ensures every VA streamline refinance is a genuinely beneficial financial move for the servicemember, not just a fee-generating event for the lender.

Where to Find This Information on Your Loan Estimate

Your Loan Estimate (LE) is a standardized document that contains all the figures you need to perform the recoupment calculation. Here's where to look:

Page 1 - 'Loan Terms': Here you will find the new Loan Amount and Interest Rate.
Page 1 - 'Projected Payments': This section shows your new monthly Principal & Interest payment.
Page 2 - Section A 'Origination Charges': This details the lender's fees, including the Origination Fee and any Discount Points.
Page 2 - Sections B & C: These sections list all the third-party closing costs, like Title Fees, Recording Fees, and other services.
Page 2 - 'Calculating Cash to Close': Look for the VA Funding Fee here to confirm if it's being financed.

To find your total costs for the calculation, add up the figures from Sections A, B, and C, and include the financed VA Funding Fee. Do not include items from Section F 'Prepaids', like your initial escrow deposit.

What to Do If Your Loan Offer Fails the Recoupment Test

If you run the numbers on an IRRRL offer from a lender in Saint Augustine or elsewhere and find it fails the 36-month test, do not panic. Here are the steps to take:

Do Not Sign Anything: Do not commit to the loan. The calculation shows it is not a compliant or beneficial VA loan.
Double-Check Your Math: Carefully review your calculations to ensure you haven't made an error. Make sure you are using only the P&I payment and have correctly identified all applicable costs.
Question the Lender: Contact your loan officer and share your calculation. Ask them to provide their official recoupment calculation for the loan. It's possible they made an error or can clarify a fee.
Negotiate the Costs: If the loan fails, ask the lender if they can reduce the costs to make it compliant. They may be willing to lower the origination fee or offer the same rate with fewer or no discount points.
Get a Second Opinion: The best course of action is often to shop around. A different lender may offer a more competitive package with lower fees that easily passes the recoupment test, providing you with a better financial outcome. Verifying your VA IRRRL meets the 36-month recoup rule is your right and your protection. If you're reviewing a loan offer in Florida and need a second opinion to ensure it's truly in your best interest, contact a VA-savvy mortgage strategist to review the numbers with you.

Understanding the numbers is your best protection in any mortgage transaction. If you're ready to explore a VA streamline refinance that is transparent, compliant, and beneficial, Apply now to get a clear analysis from our VA loan experts.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.