There are many perks of doing a VA refinance. The biggest draw being the opportunity for homeowners to refinance up to 100% of the value of their home, plus no mortgage insurance. Whether you are a veteran or on active duty, you could benefit from the refinance loans being offered by the U.S. Department of Veterans Affairs.
VA to VA Refinance
The VA offers two programs that allow homeowners to refinance their existing VA-guaranteed loans to VA loans for various purposes. These are:
The Interest Rate Reduction Refinance Loan or IRRRL Program is a streamline refinance that allows homeowners to refinance (i) to a lower rate and/or (ii) switch from an adjustable-rate mortgage to a fixed-rate mortgage.
Offering streamlined refinance, IRRRL requires no appraisal, no credit check, no income/employment verification. Documentation is minimal, including a completed loan application.
What VA-approved lenders would look into is the mortgage history of the borrower. That is, the mortgage should be current with only one late payment allowed in the last 12 months.
The borrower must also demonstrate that the refinance will result in a lower mortgage payment. However, if the borrower switches to a fixed-rate loan, his/her mortgage interest rate may increase.
2. Cash-Out Refinance
The VA offers homeowners with existing VA loans to refinance (i) up to 100% of their home value, or (ii) up to 90% of their home value if they want to take cash out. It’s up to the lenders to decide how much LTV they will refinance so it’s important to speak with a lender beforehand.»
VA Cash-Out Refinance goes by the standard underwriting route for purchase/refinance mortgage loans. Prepare yourself for an income, debt-to-income and credit score verification as well as your home for an appraisal.
Conventional or FHA to VA Refinance
The benefits of VA’s guaranty can extend to homeowners with conventional or FHA loans when they refinance to VA loans.
1. Cash-Out Refinance
Even if you don’t plan to take out cash of your equity, you can do a VA Cash-Out Refinance in order to switch to VA loans. But if you do pursue a cash-out loan transaction to pay off debts, the cash amount will be determined per the current value of the property, as appraised. Lenders can allow maximum LTV of up to 90% or 80% in the case of Texas.
Moreover, if your current property value prevents you from making a conventional refinance, then a VA cash-out refinance is your best bet.
2. Rate-and-Term Refinance
The VA has a traditional rate-and-term refinance for FHA or conventional mortgages. This could be a way to remove FHA’s mortgage insurance premium or refinance conventional mortgages with higher LTVs.
VA’s traditional refinance, like the IRRRL Program, does not allow any cash-out. It can, however, refinance up to 100% of the value of the home.
A word on VA refinance closing costs and fees
Every time you take out a VA loan, whether purchase or refinance, you are required to pay a funding fee to the VA. This fee ensures the perpetuation of the VA loan programs for years to come. If you have sustained a disability in the line of duty, you could be exempt from this fee.
The IRRRL Program allows reasonable and customary closing costs to be included in the new loan amount. Closing costs can also be rolled into a cash-out refi loan.