The VA home loan refinance program provides qualified homeowners with a simple way to take advantage of lower rates and decrease their monthly mortgage payment. Beyond that, Veteran and military homeowners can get cash back on a VA refinance and use the proceeds for a variety of needs, from paying off debt or making home improvements and much more.
With mortgage interest rates dropping under 7% for the first time since August, the current economic climate can make a great time for many military homeowners to take advantage of the numerous benefits found in a VA refinance.
Two main programs help VA borrowers refinance to a lower rate — the VA Streamline Refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), and the VA Cash-Out Refinance.
|VA Streamline (IRRRL) Refinance
Often called a "Streamline" refinance,
the Interest Rate Reduction Refinance Loan (IRRRL) option is great for
existing VA Loan holders who are looking to realize significant savings and take advantage of lower interest rates.
More on IRRRL VA Refinancing
A "Cash-Out" refinance is an option for those with a VA or conventional
loan looking to take advantage of their home's equity to access cash for home improvements,
emergencies, pay off debt, or any other purpose.
More on Cash-Out Refinancing
A Streamline refinance allows Veterans who currently have a VA loan to refinance into a lower interest rate, reducing monthly mortgage costs. Streamline refinance loans feature little paperwork and often require little to no cost out-of-pocket. Borrowers can roll closing costs into their overall loan amount. Some homeowners can also secure a Streamline refinance without an appraisal.
The other popular option, known as the Cash-Out refinance, allows borrowers to tap into their home's equity and use it as cash. This type of refinance is available to any qualified Veteran homeowner, regardless of whether they have an FHA, USDA or conventional loan.
Refinancing may result in higher finance charges over the life of the loan.
So, it's wise to crunch the numbers. Estimate your potential savings using our VA refinance calculator for Streamline and Cash-Out Refinance.
Eligibility for a VA Refinance is similar to that of a home purchase VA Loan.
Typically, you can qualify if you served on active duty for more than 90 consecutive days during wartime or more than 181 days of service during peacetime.
For National Guard members and Reservists, the Veteran must have served at least six years, or 90 days on Title 32 orders, 30 of which must have been consecutive.
Some surviving spouses of Veterans who died while in service or from a service-connected disability may also be eligible.
The two VA refinance loan options have different guidelines and requirements. Beyond that, lenders can add their own guidelines, covering things like credit score, debt-to-income ratio and more.
With a VA Streamline refinance, Veteran homeowners might not need to meet a credit score benchmark or debt-and-income requirements. On the other hand, VA Cash-Out refinances typically look a lot like a typical VA purchase loan when it comes to credit underwriting, including meeting a lender’s credit score minimum, DTI ratio guidelines and more.
There are also unique requirements for each refinance loan related to how soon you can refinance and what kind of benefit you’ll gain from it.
Generally, you can't refinance until 210 days after the first mortgage payment was due, and you need to have made at least 6 monthly on-time payments.
Seasoning guidelines for VA refinance loans can vary by lender. At Veterans United, we currently require 7 monthly payments and a minimum 240-day seasoning window.
There are several benefits of refinancing with a VA loan. Here are some of the key advantages:
1. Lower interest rates: VA refinancing often offers lower interest rates compared to conventional refinancing, which can lead to significant savings over the life of the loan.
2. No private mortgage insurance (PMI): VA loans do not require PMI, even if the homeowner refinances more than 80% of their home's value. This can result in considerable monthly savings.
3. Minimal upfront fees: VA Streamlines, in particular, typically feature minimal costs and fees. Although the VA funding fee is still required for refinancing, it may be rolled into the closing costs, and some borrowers may even be exempt from paying it. Plus, the funding fee on a VA Streamline is 0.5%.
4. Flexible credit requirements: VA refinancing typically has more lenient credit requirements compared to other refinancing options, making it more accessible for Veterans with less-than-perfect credit scores.
5. No prepayment penalties: VA loans do not have prepayment penalties, allowing borrowers to pay off their mortgage early without any extra fees.
These benefits make VA refinancing an attractive option for those who qualify, providing financial advantages and flexibility not always found in conventional refinancing.
1 Our military advisors are paid employees of Veterans United Home Loans.