Refinancing your home loan would mean a huge difference when it comes to saving. With rates still at their all-time low, homeowners are given an opportunity to save a big deal of money. US Veterans, on the other hand, are up for something better.
VA loans are known for having zero down payments, not requiring a mortgage insurance and low interest rates. Meanwhile, VA refinance loans are just as awesome! You can refinance up to 100 percent of the property’s value.
Veterans who want to refinance should consider the Veteran Affairs’ refinance programs. Even those whose home loans are funded by a conventional (non-VA) loan can be refinanced into a VA loan.
Although everyone has different needs and shopping around will help find the best lender, start shopping with refi programs from the VA to quicken your search. And depending on your needs, one program should tailor-fit.
There is the Veteran Affair’s Interest Rate Reduction Refinance Loan (IRRRL). Another type is the VA Cash-out Refinance Program. Both are similar for the reason that they aim to help you save more money, but there are differences, too.
If you are looking for an easy way to refinance a VA loan, the IRRRL is the way to go. But, just how easy is it?
If very few paperwork isn’t enough to call it easy, how about not requiring a new appraisal and certificate of eligibility? Does that sound even better? The veteran Affairs does not require a credit underwriting, too. It is made easier by waiving off other verification steps. This is why it is otherwise called the “VA Streamline” Refinance.
But not all loans can be refinanced through IRRRL. The property has to be on a VA loan already which is why it is also called a “VA to VA” Refinance. For this reason, getting another certificate of eligibility isn’t necessary. Also, it is not required that the borrower be currently living in the said home. It just has to be certified that he/she has previously occupied it.
Another good thing about the IRRRL is it can be done with “no money out of pocket”. This means that the new interest rate is set “high enough” to cover the closing costs enabling the lender to pay it. Even so, this new rate still has to be lower than that of the loan before the refinance. The only exception would be if the loan is shifted from an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage.
The IRRRL, however, does not allow the borrower to receive cash proceeds from the loan.
Borrowing Cash from Equity
If you’re looking for a way to convert a part of your home’s equity into readily usable cash, consider the VA Cash-out Refinance. Of course, you can still reduce the interest rate at the same time in this program.
Also, eligible veterans can refinance a non-VA loan into a VA home loan through this program. This is something not possible with IRRRL.
In a VA Cash-out Refinance you can:
- refinance to a new loan which is larger than the current loan. After fees and charges have been deducted to this new loan, proceeds then will go to you, and
- completely pay off a non-VA mortgage loan. This also where the shift from a non-VA to a VA loan happens.
The maximum loanable amount in this program is up to 100% of the property’s value (up to 100% LTV). With that being said, a new property appraisal needs to be done to establish the new value of the home.
Unlike the IRRRL, income and employment verification is required for Cash-out Refinance. You will be asked to provide the most recent 30-day payslip(s), the W2 forms and income tax returns of the current two years. All other individuals whose names appear on the loan application will also undergo a verification of their monthly income.
The money from the Cash-out Refinance can be used in a variety of ways. It can go towards medical bills, paying for college or home renovations. It is advised, though, that one should take caution in getting this type of refinance. This is because the amount of money borrowed is increased and the loan lifetime is extended. A Cash-out Refinance may be reserved for emergency situations where a large sum is very much needed.
Both refinance programs have a VA funding fee. This fee can be rolled into the loan. And although VA only requires a funding fee, the VA lender may require some additional charges. It is up to the lender if they would allow these other charges to be carried into the loan. Also, one refinance option is cheaper than the other; the IRRRL equals to only 0.5% of the total amount of the loan.
It should be noted that even if the VA only requires very few things, the lender may require additional documents anyway. Take for example the credit requirement in a Cash-out Refinance, there is no minimum credit score required by the VA. Lenders, however, may require a minimum score of 620.
Easy Comparison Table between IRRRL and VA Cash-out Refinance:
Finding What You Need
Shopping for lenders is still advised. In this way, you will find a lender who is willing to work with you on your current financial situation. Help is also available from a VA loan officer should you wish to speak to one. Maximize your resources, other helpful articles are also available on this site for you to read. You can start your shopping now. Get matched with a lender by clicking below and following quick and easy steps.