VA Home Refinancing Benefits

VA Home Refinancing Benefits

VA Home Loans provide qualifying homeowners with lower interest rates and lower monthly mortgage payments. Military homeowners can also receive cashback on a VA refinance loan and use the funds for other purposes, including debt consolidation, home upgrades, and more. The present economic climate has prompted many military homeowners to take advantage of these benefits available for refinancing a VA loan.

If you have served in the military and own a house with a VA loan, it is important to understand VA refinancing. Let’s dive into everything you should know.

Before refinancing your home, check out our VA loan calculator to see how it will change your monthly payment!

Why Consider VA Loan Refinancing

There are several reasons why a VA loan refinances may be a good choice for you:

  • Get a lower rate of interest – If interest rates have fallen or your credit has improved since you first obtained your loan, a VA refinance could lower your rate.
  • Switch from an adjustable rate to a fixed rate – Some people choose adjustable-rate mortgages when they are less expensive in the first few years of the loan. This can be especially appealing to military personnel who travel frequently. However, a VA home loan refinance can help if your rate has risen or you desire the security of a fixed-rate loan.
  • Utilize your home equity – A VA cash-out refinance loan may be a suitable alternative if you need to use the funds for something else, like paying off high-interest debt, paying for school tuition, or working on house renovations.

Need to learn more about VA loan assumption? We’ve got you covered!

Two Kinds of Refinancing Goals

There are two options for refinancing under the VA loan program:

  1. A VA Streamline, also known as an Interest Rate Reduction Refinance Loan (IRRRL)
  2. VA Cash-Out Refinancing, allowing you to cash out your home equity in one lump sum payment

Refinancing to Cash Out

Cash-out refinancing refers to refinancing your existing mortgage into a larger one and receiving a check for the difference. This method is one of the three most common ways to obtain cash from your home equity (HELOC), along with a home equity loan and a home equity line of credit.

You can also use the VA Cash-Out refinance program to convert an FHA or conventional loan to a VA loan. The IRRRL Streamline program does not offer this option.

Choose a VA cash-out refinance loan if you want to:

  • Get a VA loan or a traditional loan.
  • Cash in on your home’s equity.
  • Pay for all of the closing charges upfront.
Tip: On a conventional loan with little equity, a VA cash-out refinance can be a fantastic method to avoid paying FHA mortgage insurance payments, USDA loan guarantee costs, or private mortgage insurance (PMI).

IRRRL Refinancing (For a Better Rate)

The most frequent type of VA loan refinance is the Streamline Refinance, also known as an IRRRL. This program will lower your interest rate and lower your monthly payments, resulting in both monthly and long-term savings. IRRRLs can also be used to switch from a variable-rate VA loan to a fixed-rate loan.

The IRRRL has several advantages over other types of mortgage refinances, one of which is that there is no credit check. You might not even need an appraisal, and the documentation requirements are modest. Existing VA borrowers will find the entire process to be cost-effective and straightforward.

Tip: To refinance, some lenders ask you to have only one late payment in the previous 12 months.

VA IRRRL Refinance vs VA Cash-Out Refinance

VA Streamline Refinance (IRRRL) VA Cash-Out Refinance
Purpose Reduce the interest rate on a VA loan Refinance any type of mortgage and get cashback
Eligibility Current VA borrower Anyone who qualifies for a VA loan
Funding fee 0.5% 2.3% or 3.6%
Closing costs It may be less than standard based on the lender (costs can be rolled into the loan) Standard
Credit and property underwriting Usually not necessary Full underwriting is necessary

Benefits of Refinancing Using a VA Loan

In addition to saving money, there are numerous other advantages to replacing your existing mortgage with a new one. Here are some of the biggest benefits of refinancing a VA loan.

  • No Down Payment
  • No Private Mortgage Insurance
  • Competitive Interest Rates
  • Relaxed Credit Requirements
  • Closing Cost Limits
  • Lifetime Benefit
  • No Prepayment Penalties
  • Avoidance of Foreclosures
  • No Loan Limits
  • Exemptions from Funding Fees

Are You Eligible for a VA Refinance Loan?

Veterans and active-duty military personnel are subject to service requirements, and certain military spouses may be eligible for VA loans. More information is available on the government’s website. However, the following are the main requirements:

  • You are currently serving in the military or are a veteran who has completed the minimum service requirements and has been honorably released.
  • During wartime, you served for at least 90 days, or during peacetime, you served for at least 181 days.
  • Alternatively, you served in the National Guard or Selective Reserve for more than six years.
  • A VA loan might be available if your spouse died in the line of duty.
  • To apply, you must first get a VA Certificate of Eligibility, also known as a COE. You won’t be able to acquire your loan unless you have this certificate.

To qualify for a VA Streamline refinance, you must already have a VA loan.

VA Refinancing Guidelines and How to Apply

Here are all of the steps you need to take to apply for VA refinancing.

Steps to Apply for the IRRRl Refinance

  1. Do your homework – You will need to receive estimates from direct lenders, such as a bank, credit union, or mortgage business, or from a broker, to get an IRRRL. The VA does not provide IRRRLs directly.
  2. Get your Eligibility Certificate (COE) – To prove your eligibility for the loan, you’ll need to show your lender your original COE. If you don’t have the original, you can request it from your lender via the VA Home Loan Program Portal.
  3. Close on the IRRRL by your lender’s requirements – A funding charge, as well as closing costs and interest on the loan, may be required.

Steps to Apply for the Cash Out Loan

VA cash-out refinancing will follow the same procedure as your home purchase mortgage process.

Those who want a cash-out VA loan will need to:

  1. Select a VA lender – It is good practice to compare at least three lenders to ensure you’re getting the best deal.
  2. Get your COE (Certificate of Eligibility) – You can get this from your loan officer in just a few minutes.
  3. Complete the loan application – You’ll need to submit supporting documents such as bank statements, W2s, and pay stubs.
  4. Obtain an appraisal of your new home – This will be ordered on your behalf by the lender. A recent assessment is required to confirm the current worth of your house and the amount of equity you have available for withdrawal.
  5. Go through underwriting – While the lender verifies your financials, this is mostly a waiting game. Fulfill any document requests as soon as possible.
  6. Closing the loan – You’ll sign your final loan documents and pay your closing expenses on the day of closing.

It’s worth noting that a VA cash-out refinance necessitates thorough underwriting. Consequently, it will take longer and need more paperwork than the VA Interest Rate Reduction Refinance Loan (IRRRL), which requires less.

Which Refinancing Option Is Best for You?

Consider which loan type is best suited to your needs when picking a VA refinance option. An IRRRL may be your only option in some situations, such as owing more than the value of your property or being unemployed.

Compare your options to see which one gives you the best deal and saves you the most money.

Refinancing Option  Suitable for
VA streamline refinance (IRRRL) Veterans who want a lower interest rate or shorter loan term without being underwritten or appraised
VA cash-out refinance Homeowners who wish to access their home equity or refinance their non-VA loans

Check out our article on the additional VA loan options you can choose from!

The Bottom Line

Refinancing may be a wise financial decision if it lowers your mortgage payment, reduces your loan term, or accelerates equity development. It can also help you reduce debt when utilized correctly. Make sure to examine your financial situation before refinancing.

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