You have a VA loan and want to refinance it. Do you have to stick with your current VA lender? The short answer is no you don’t. You can use any VA approved lender. In fact, it often makes sense not to use your current lender. We discuss the reasons why below.
The Benefits of Using Your Current Lender
While you don’t have to use your current VA lender, there are a few benefits of doing so. First, it’s easy. Your current lender knows you and your financial situation. You also know how the lender works. You’ve been through the mortgage process with them already. This could make the process less stressful. It might even make it faster. The lender may not have to re-verify every aspect of your loan.
Before you jump at the chance of an easy refinance, consider the downsides of using your current lender.
The Downsides of Using Your Current Lender
You won’t know what other options are out there if you use the same lender. How do you know how the rates compare to others? What if another lender has lower closing costs? They could even have a better term combined with a better rate for you.
Other lenders many have different thresholds for risk. Many borrowers with less than perfect credit assume they are stuck with their lender. They think no one else will give them a loan. This may not be true. You won’t know unless you try, though.
Look at Your VA Refinance Options
Refinancing your VA loans means you have a few options. Whether you need cash out of the equity decides which program is right.
The VA Cash-Out Refinance – This loan allows you to take cash out of the equity of the home. You can refinance as much as 100% of the value of your home. It depends on which lender you use, though. Your current lender may only allow 85% LTV. Another lender may allow 100%. You won’t know until you shop around.
The VA cash out refinance requires you to verify every aspect of your loan application. No matter which lender you use, you must verify your income, employment, credit score, and the value of your home. You may or may not have to verify your assets. Whether you use your lender or a new one, they must verify everything. Taking cash out of the equity of your home is risky for the lender. This is especially true if you borrow 100% of the home’s value.
The VA IRRRL program doesn’t require very much verification. IRRRL stands for Interest Rate Reduction Refinance Loan. As the name suggests, you need a lower interest rate. You can get around this with another benefit, such as a fixed rate rather than an ARM. Basically, you show the lender there is a benefit for the refinance. All you must verify is your housing payment history and your previous occupancy of the home. Lenders don’t verify income, assets, credit, or the value of your home. You can only refinance the outstanding principal balance and the funding fee, though.
Know How to Shop the Loans
Shopping for the right loan means you must do more than find the right interest rate. It means looking at the big picture. You want the best interest rate, closing costs, and APR. It all ties together. If one lender offers you a 4% rate, but another offers a 5%, the 4% looks better – it might not be. You need to look at the closing costs. The lender with the lower rate may charge 2 points. That means your closing costs could be much higher. You wouldn’t know this without comparing the loans side-by-side.
What to Look For in a Lender
Now that you know you have the option to shop around, what should you look for? Here are a few key factors:
- Lender fees, such as origination or discount points
- Lender fees including processing, underwriting, and miscellaneous fees
- Third party fees pertaining to the appraiser and title company
- Loan type, compare apples-to-apples
- Loan term, again make sure they are the same for sake of comparison
Don’t fall for a line stating you have to use the same lender. You are free to use any VA approved lender. If you aren’t sure who is an approved VA lender, look online. You can always call and ask the lenders too. Don’t just use any VA approved lender, though. Ask each lender questions. Make sure they are qualified. A few key questions include:
- How long have you been providing VA loans?
- How many VA loans did you provide last year?
- What programs do you have available for the VA loans?
This will give you an idea of their knowledge of the program. Using an experienced lender usually has better results.
It’s always good to know you have options. You may love your current VA lender and don’t want to work with anyone else. That is totally fine. As long as you shop around and make sure your lender has the best deal. You might overlook serious savings if you don’t take this small step, though. It doesn’t take too much time. Lenders can usually pre-approve you within the same day that you apply. They must then provide you with a Loan Estimate within 3 business days. This way you can compare your options within a week.
Choosing a different lender other than your current VA lender is part of the business. Don’t feel obligated to stick with the same lender. If there is a better option out there, take it! The more money you can save, the better. A mortgage is likely one of the largest investments you will make. The more you can save on interest and closing fees, the better. In the end, you get the best of both worlds – a valuable VA loan and low interest rates/costs.