Refinancing your VA home loan can be a powerful financial decision. Make sure you are aware of the different refinancing options, and what implications it has on your current mortgage.
Refinancing can be smart for homeowners looking to lower their interest rate, reduce their monthly payment, pay off their loan sooner, or cash in on their home equity.
Under the VA loan program, there are two ways to refinance:
The Streamline Refinance — often just referred to as IRRRL, is the most common type of VA loan refinance. With this option, the goal is simply to lower your interest rate and reduce your monthly payments, thus saving you monthly and over time. IRRRLs can also be used to change the type of loan you have, say from a variable-rate VA loan to a fixed-rate one.
When compared to refinances on other types of mortgage loans, the IRRRL comes with some serious benefits. For one, there’s no credit check required. You also may not need an appraisal, your funding fee is minimal, and the documentation requirements are very light. The entire process is designed to be fast and affordable for existing VA borrowers.
If you need money for home renovations or another expense you have coming up, a VA cash-out refinance could be a good option. With these loans, you can often finance up to 100% of your home’s value, paying off your old loan and taking the difference in cash.
You can also use the VA cash-out refinance program to refinance from an FHA or conventional mortgage loan into a VA loan. This is not possible with the IRRRL Streamline program.
|Must have a VA loan to qualify?||Yes||No|
|Can take cash-out?||No||Yes|
|Requires credit check?||No||Yes|
|Can change your interest rate or loan term?||Yes||Yes|
|Must currently live in the home?||No||Yes|
|Appraisal required?||Not always||Yes|
|Funding fee||0.5%||2.3% to 3.6%|
Eligibility for a VA refinance varies based on which loan program you choose. For IRRRL loans, you need to have an existing VA loan and be able to certify that you currently live in or used to live in the property you’re refinancing.
With a cash-out refinance, you’ll need to produce your Certificate of Eligibility (or allow your lender to pull one on your behalf) and intend to live in the home you’re refinancing. You will also need to meet the credit and income standards required of your mortgage lender, which can vary.
As with any mortgage loan, you’ll pay closing costs on a VA refinance. These vary based on your loan amount and lender. Both types of VA refinances also require a funding fee, which varies from 0.5% (on IRRRLs) and 3.6% (on cash-outs).
On top of these upfront fees, you’ll also have your interest costs. VA refinance rates tend to be lower than rates on traditional refinance thanks to the government backing they come with. Still, rates differ widely from one lender to the next, so make sure to shop around. Getting quotes from at least a few VA-approved lenders can ensure you get the best deal.