Refinancing your current mortgage with a VA loan can be a wise move if you are an active duty military member, veteran, or a qualified spouse. Fortunately, refinancing for a VA loan is not too difficult, provided you meet military service requirements and lender criteria. There is everything you need to know about refinancing your VA loan.
What is a VA loan refinance?
A VA loan or mortgage refinance is a mortgage product supported by the Department of Veterans Affairs (VA). You can exchange your current loan for a new one, but the terms are different. Depending on the type of loan you choose, you may be able to get a lower one interest ratechange the loan term or convert your home equity to cash.
Furthermore, if you first remove it Adjustable Mortgage (ARM) You can also switch to a fixed VA mortgage if you require a more predictable monthly payment.
Types of VA loan refinancing
When choosing to refinance with a VA loan, there are two main options.
- Interest-reduced refinance loan (IRRRL): Often referred to as VA Streamline Refinance, IRRRL is available to current VA loan-holding homeowners looking to secure lower interest rates.
- VA Cash Out Refinance: Mortgage holders exchange new mortgages and new mortgages, Home Equity They’ve accumulated.
| IRRRL | Refinance VA Cash Out | |
|---|---|---|
| Property Type | Any residence: primary, vacation home, etc. (if previously occupied) | Main residence |
| Requirements | No late payments for 30 days within the last 12 months (select an option lender) | – You must meet your credit and income criteria – Lender’s Home rating |
| Closure costs | You can get caught up in a loan or be paid by a lender | The borrower must pay in advance |
| Loan restrictions | Limited to VA-supported mortgages | Can be used for traditional loans and VA-assisted loans |
Who is eligible to refinance a VA mortgage?
As the name suggests, current and former members of the US military can refinance VA loans. More specifically, here are what you need to qualify for a VA refinancing loan:
- service: Eligibility for VA Home Loan Typically, 90 days of active duty military service during a designated conflict, six years in the National Guard or Reserve, or 181 days of active duty during peacetime. Veterans must be discharged with honor despite the exceptions. You may also qualify if your spouse dies on duty or dies due to a service-related disability. You also need a VA loan A verification certificate of military service (COE) obtained directly through a lender or through the Department of Veterans Affairs.
- income: The borrower must also show sufficient income to pay off the loan. Debt Income (DTI) Ratio Usually capped at 41%.
- Credit score: The VA doesn’t have a minimum credit score, but most lenders look for at least 620. underwriting).
- Property Type: The property purchased with a VA loan must be a major residence, not a second home or rental property.
- timing: Under certain conditions, it can be expanded up to 12 months, but the new home must be occupied within 60 days of closure. Traveling beyond 12 months is not considered acceptable to the VA.
How to refinance with a VA loan
Refinancing for a VA loan is relatively easy. However, the two types require slightly different steps to obtain.
Interest-reduced refinance loan (IRRRL)
If you want to refinance with IRRRL, follow these steps:
- Find a lender. IRRRL is supported by VA but is provided by banks, credit unions and private mortgage companies. Bankrate’s list of the best VA lenders is a starting point for studying potential lenders. You can also talk about the experiences and recommendations of military friends and family.
- Provide the necessary information. You will need to submit a document to apply for IRRRL. This includes providing a certificate of certification (COE). The lender you choose to work with will let you know other necessary information you may need to provide.
- Complete the lender closure process. Each VA lender has a step that they must follow to close the loan. Regarding costs, I will pay 0.5% fee to remove IRRRL and remove lender closure fees. Some lenders also suggest paying the closing fee for you in exchange for a higher interest rate.
It is important to note that you can only use a VA Streamline mortgage if the new interest rate is lower than the current rate. This means you may need to wait for interest rates to drop before you can pull the trigger for the VA IRRRL. There is one exception. If you are switching from a VA Arm loan to a fixed-rate loan, the rate on your new loan may be higher than the ARM rate.
Refinance VA Cash Out
a VA Cash Out Refinance Loan Current homeowners can refinance their mortgage and retrieve some or all of the fairness they have acquired. This type of loan can be used to refinance either an existing VA loan or a traditional mortgage, and the VA guarantees a loan worth up to 100% of the value of the home. If you want to pursue VA Cash-Out Definance, here’s how to do this:
- Find a lender. Similar to the IRRRL process, the first step is to compare prices and conditions to shop and identify the lenders you want to cooperate with.
- Obtain a Certificate of Eligibility (COE). Lenders will need to advance the COE to refinance this type of VA loan. This serves as proof that you qualify.
- Send the necessary information. In addition to COE, your lender may ask you to provide personal financial information such as stubbing wages from the past two years, W-2 forms and tax returns.
- Get a home rating. The lender will order a home valuation as part of the VA cash out refinance process to determine the value of your home.
- Follow the lender closure process. Complete the steps to pay the lender’s closure and closure fees and required funding fees to complete the cash-out refinance. If it’s your first VA mortgage, the funding fee is 2.15%. However, if you have already used the VA loan benefits before, your funding fee will increase to 3.3%.
Benefits of refinancing to a VA loan
There are a wealth of benefits to refinancing with a VA loan. Therefore, VA home loans are extremely popular among those who can qualify. Other important benefits of refinancing on a VA loan include:
- No mortgage insurance required: VA Home Loans do not require mortgage insurance even if you don’t spend any money.
- There is no cash in advance: no down payment Refinance loans require closing costs, but they do.
- Minimum prepaid costsS: VA loans usually charge a Funding Fees The borrower pays in advance. You can wrap it up in closing costs, but this means you will pay more interest over time. Fees may be waived if you have a service-related disability or are the spouse of the deceased veteran.
- Save interest: VA Home Loan Fees They are usually competitive and save money compared to traditional loans.
- Easy to get: There are more stringent eligibility rules for cash-out refinance loans, but the VA’s more flexible credit and income standards make it easier to qualify.
- There are no prepayment penalties: There are no penalties for early repayment of VA loans.
- More Protective Payments: If you require consistent monthly payments, you can switch from an adjustable rate to a fixed-rate VA mortgage.
Do I need to refinance my VA loan?
It depends on your own financial situation. VA loans come with a variety of perks that could make you a better choice.
Refinance is meaningful in the following scenario:
- You are looking for a lower interest rate than elsewhere. VA loans that include refinances are known for offering more competitive interest rates than typical market rates. This will save you money in the long term.
- You want to eliminate mortgage insurance premiums. If you refinance with a VA loan, you won’t be charged private mortgage insurance.
- You already have a VA loan you want to refinance. IRRRL allows you to switch to a new loan in many cases without receiving underwriting.
- If you’re looking Access your home equity. Refinance VA Cash Out allows you to look up to 100% of the valued value of your home.
If you are considering refinancing a VA or traditional mortgage, VA Loan Calculator It will help you estimate your new monthly payments. Many banks, credit unions, and online lenders offer VA loans, but they stick to VA lending professionals as their applications can be complicated.
Ultimately, you should consider the costs that come with these loan products to determine whether refinancing to a VA back loan is a wise financial move.
