How Does a VA Loan Refinance Work?

The VA Loan Refinance program enables qualified veterans, who are also current borrowers, to procure a reduced monthly rate for their remaining loan or to dispense cash from their home’s equity.

Cash Out VA Refinances

Cash Out refinancing is normally used by veterans that want to have additional funds on hand. Typical features of VA Home refinancing include the following:

• This refinancing plan does not set a minimum time frame for your home ownership but it requires that your home should have sufficient equity to be eligible for the loan.
• Your maximum refinancing cash out is 90% of your home’s loan-to-value ratio (not applicable to all states).
• This program usually applies to homes that are considered your primary place of residence.
• VA Home refinancing has a nominal funding fee of 3% (unless exempted).

Cash Out refinance allows you to utilize built-up equity to cash out a portion of the loan to maybe pay off credit card debts, renovate a home, or pay for tuition.

VA Streamline Refinance (IRRRL)

VA Streamline refinance, otherwise known as Interest Rate Reduction Refinancing Loan (IRRRL), is more suited for interest-saving. Ideally, this loan program is used with the intention of lowering your loan’s interest rate and current mortgage rate.

Common features of IRRRL are as follows:

• Streamline refinancing gives you the chance to combine your closing costs into the remaining balance of your loan. This way you can minimize down payments.
• VA will not require you to re-appraise your home; but your lender might ask for a credit report, proof of employment and an appraisal for your home.
• You will not be asked to re-apply for a Certificate of Eligibility (COE). The one you used to get the loan the first time around would suffice.
• IRRRL can be made possible without dispensing money from your pocket by consolidating all costs into the new loan you are applying for or by making an interest rate sufficient enough for the lender to manage the costs.
• This VA loan refinance program requires a funding fee of 0.5% and does not require you to live in the home you wish to refinance.

Typically, veterans would prefer to mitigate expenses rather than take money out. IRRRL is a more suitable method for this intention.

How Does the Process Work?

The key thing to remember for IRRRL is that it only leads to lower interest rates when you are not refinancing from a pre-existing VA-guaranteed ARM to a fixed rate mortgage. The following tips can help you navigate the process of VA Streamline refinancing:

• When you consider refinancing your home, you are advised to contact several lenders. Lenders offer varying terms and packages. Having as many options to choose from will allow you to select the most favorable lender for your needs.
• There is no single IRRRL that can accommodate all homeowners; each case is different.
• Remember to certify that you have previously occupied the house you intend to refinance (unless you are currently living in it).
• Your IRRRL should not exceed the sum of the remaining balance on the existing loan along with closing costs, allowable fees, funding fee and a maximum of 2 discount points.

It is best to first identify where you presently stand in terms of your housing loan, in order to make the most out of any refinancing loan. Ultimately, your VA loan refinance should save you money.

Ready to explore your options? Get a VA refinance quote today.