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What is the VA's 36-month recoupment rule?
The VA requires a streamline refinance to pay back its own closing costs within 36 months. Here is what counts toward that math, what is left out, and the two seasoning clocks you have to clear first.
If a lender has offered you a VA streamline refinance — an IRRRL — there is a test it has to pass before it can close. The costs of doing the refinance have to pay for themselves, out of your own monthly savings, within 36 months.
Congress wrote that test into law in 2018, after years in which VA borrowers were refinanced repeatedly, each time paying a fresh round of closing costs for a rate cut too small to earn them back. It is not lender policy and not a guideline a loan officer can work around.
The rule in one sentence
Divide the fees and closing costs you are being charged by the amount your monthly principal-and-interest payment goes down. That is your recoupment period, in months, and it has to come out at 36 or less.
So $4,200 of costs against a $140 monthly reduction recoups in 30 months and qualifies. The same $4,200 against a $95 reduction is about 44 months and does not.
The clock starts at the note date, and it does not care whether you paid at the table or rolled the costs into the balance. Rolling them in is still paying them — the money comes out of your equity instead of your checking account.
What counts, and what is deliberately left out
The number a lender puts in the recoupment box is usually smaller than the total on your Closing Disclosure, and the difference is not an error.
The statute counts everything "other than taxes, amounts held in escrow, and fees paid under this chapter". VA Circular 26-19-22, Exhibit B, turns that into a list:
- Included: allowable fees and charges, whether financed or paid outside closing, plus the credit report, the appraisal fee and reasonable discount points.
- Excluded: the VA funding fee, per diem interest, escrow, and prepaid expenses — insurance, taxes including delinquent taxes, special assessments and HOA fees.
The funding fee is the one that surprises people, because it is often the largest line on an IRRRL. It is a fee paid under the VA's own loan chapter, which is exactly the carve-out the statute's last clause describes.
Reading it off your Loan Estimate
You do not have to sort this by hand. The boxes on page 2 of a Loan Estimate map onto the rule almost cleanly:
| Box | What it is | Counts toward recoupment? |
|---|---|---|
| A + B + C = D | Total Loan Costs | Yes, all of it |
| E | Taxes and Other Government Fees | Partly — see below |
| F | Prepaids | No |
| G | Initial Escrow Payment at Closing | No |
| H | Other | Depends on what is in it |
| I | Total Other Costs (E + F + G + H) | Not as a total |
| J | Total Closing Costs (D + I, less credits) | Not as a total |
Box D is the workhorse: fees rather than taxes, none of it escrow, none of it paid under the VA's chapter. All of it counts.
Box I is the one to avoid. It looks like a convenient total and it sweeps in Boxes F and G — the prepaids and escrow the statute excludes. Using it would overstate what has to recoup and can make a compliant loan look like it fails.
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Lender credits shorten the clock
A lender credit appears as the second line of Box J, shown as a negative — money the lender puts toward your costs in exchange for a higher rate. It comes straight off the recoupable total, and Exhibit B says so directly: credits may be used to offset allowable fees and charges, including discount points.
So two IRRRLs with identical fees can recoup at very different speeds, and a credit large enough to cover the allowable fees recoups immediately — nothing is left to earn back.
The catch is that a credit is bought with a higher rate, which shrinks the monthly saving. The credit cuts the numerator and the rate cuts the denominator, so the effect is a calculation rather than a given. Usually the credit wins. Not always.
Both figures sit side by side on the VA recoupment calculator.
Seasoning: two clocks, and you need both
Before recoupment even applies, the loan being refinanced has to be old enough. Two requirements, running at the same time, and you need both:
- 210 days since the first payment due date on the existing loan — not the closing date, not the note date, but the date the first payment was due.
- Six consecutive monthly payments made on that loan.
On a normal schedule the 210-day clock finishes last, so six payments alone will not get you there, and paying ahead does not help — six payments means six months of payments, not six payments' worth of money. Close in March with a first payment due May 1 and the earliest IRRRL note date is around the end of November.
What to do with this
Ask for four numbers: Box D, the lender credit on Box J, the funding fee separately, and the new principal-and-interest payment. Those four check the lender's work and answer the question the rule does not — whether the refinance is worth doing rather than merely allowed. If the period lands near 36 months, add a fifth: how are you treating Box E?
A loan can clear 36 months comfortably and still be a poor trade if you plan to sell in two years, or if it restarts a 30-year term you are eleven years into. The rule is a floor under the worst offers, not a recommendation.
Put your balance, your current rate and the boxes off your Loan Estimate into the calculator below — Box D, the recording fees inside Box E, and any lender credit from Box J. It will show you the recoupment month, whether it clears 36, what the funding fee does to the real payback, and the date both seasoning clocks run out.
Sources: 38 U.S.C. § 3709, subsection (a) for the 36-month recoupment period and the three exclusions, and subsection (c) for both seasoning conditions. The included and excluded fee lists, and the treatment of lender credits, from VA Circular 26-19-22 and its Exhibit B. Loan Estimate box lettering from Regulation Z § 1026.37, paragraphs (f) and (g). Funding fee figures from VA funding fee and closing costs.