It was fairly recent when VA with CFPB (Consumer Financial Protection Bureau) issued a warning order alerting Veterans about attractive yet dubious offers to refinance their VA loans.
These too-good-to-be-true offers tend to confuse two different VA refinance programs: cash-out and streamline refinancing (IRRRL).
By way of friendly reminder, let’s put the VA refi programs side by side and see which product is for what refinancing goal.
An Intro to VA Cash-out and VA Streamline Refinance Programs
Existing VA borrowers like you are presented two major options when refinancing VA loans.
The first one is the Interest Rate Reduction Refinance Loan or IRRRL. This involves refinancing VA to VA loans for homeowners to get lower rates and thus lower payments than on their current loan.
IRRRL employs a streamline refinance approach — no appraisal, no credit information or underwriting and may be done with no money out of pocket because closing costs can be rolled into the loan.
The VA streamline refinance program, however, has no cash-out component. Those looking to consolidate debts or have major uses for cash later on can turn to VA cash-out refinances.
This second VA refinancing option allows borrowers to take home the excess cash after the primary mortgage lien has been paid off. Aside from VA, FHA and conventional mortgage borrowers can use the cash-out program.
Comparing Cash-out and Streamline Refinances
Now that we’ve defined their purpose, we can compare the important features of the two refinance programs:
- IRRRL does not require an appraisal.
- VA cash-out does as basis for the loan amount.
Cash to the Borrower
- IRRRL does not allow the borrower to receive any cash out of the loan proceeds.
- Cash from VA cash-out refinance can be used for any purpose acceptable to the lender.
- No credit underwriting package is generally required for VA IRRRLs.
- VA cash-out requires full credit information and underwriting.
Fees and Charges
- Allowable fees and charges and reasonable discount points of up to two may be added to an IRRRL.
- Allowable fees and charges and points may be paid from the cash-out loan proceeds.
- IRRRL requires the new rate to be lower than the current one unless the transaction is from an adjustable-rate mortgage to a fixed-rate mortgage.
- Not a requirement on VA cash-out loans.
- For an IRRRL, one can borrow the unpaid loan balance plus the allowable fees and charges, funding fee, and energy efficiency improvements.
- VA cash-out borrowers can finance up to 100% of the appraised value of the home, plus funding fee and energy efficiency improvements.
Maximum VA Guaranty
- VA guarantees at least 25% of the IRRRL amount.
- VA guaranty on its cash-out loans are the same for its purchase loans.
- IRRRL must result in lower payments than on the loan being refinanced unless it is an ARM being refinanced, the repayment term is shortened, or energy efficiency improvements are added to the new loan.
- No such requirement for VA’s cash-out loans.
Maximum Loan Term
- IRRRL can be repaid based on its existing loan term plus 10 years but not exceeding 30 years and 32 days.
- The cash-out loan also has the same maximum loan term.
- The Veteran or spouse of an active duty Servicemember is required to certify prior occupancy for VA IRRRL.
- For VA cash-out loan, the Veteran or spouse must certify intent to occupy the home.
Have more questions about either or other VA refinance programs? Speak with a lender today.