Has this happened to you? You've received a mailer promising what seems to be an impossible rate only to find out it’s an ARM with ridiculous points and fees. Yet it does get you thinking that maybe you could save some money by refinancing your Conventional or FHA loan into a new VA loan. So you get online, research lenders, rates, and fees. After what seems like a daunting and exhausting task of fielding sales calls and deciphering one offer from another, you decide on a lender and move forward with your VA refinance only to be sidelined by a low appraisal. The lender you chose requires you to lower your loan amount, which means you would have to bring in cash to close that you either do not have or do not wish to use.
What options are available when you have a low VA appraisal?
Option 1: Stay with the current lender and do what they say
If you’re reading this article, more than likely you’ve been given this option and you’re not happy with it. Little is left to say about this option. Keeping your money in your checking, savings or investment accounts may very well be more important.
Option 2: Refinance into a new FHA or conventional loan
The main problem with this option is you are more limited as far as loan amount and loan to value. VA allows you to not only refinance up to 100% but allows you to pull cash out as well up to the full value of your home.
- Extremely expensive monthly mortgage insurance that either takes years to get rid of or in the case of FHA, is now permanent!
- You cannot cash out over 90% of the value of your home
- You cannot refinance over 90% if you are paying off a 2nd mortgage that was NOT used to purchase the home.
- You would have to pay for another appraisal since you would be switching programs
Option 3: Find a lender that will follow VA’s 100% cash out refinance rule
This does not mean you have to take cash out. It just means you are not limited to 90%. In addition, your VA appraisal is 100% transferable. This is a definite advantage and a huge benefit because you will be able to close your VA refinance much sooner and not have to pay for a new appraisal.
Clearly this is the best solution. Below are the advantages of switching lenders and finishing your VA refinance:
- You can refinance up to 100% which keeps your valuable investments intact
- Appraisal is transferrable - No need to pay for a new appraisal
- No lender fees which saves valuable equity
- Significant lenders credits available to pay for third party fees and escrow, also saving valuable equity
- Rates lower than what most investments earn.
- Tax deductibility of mortgage interest versus losing valuable future investment earnings
Many veterans still don’t know that 100% cash out VA refinances are available. In fact, many lenders still don’t allow it or believe it or not, know it even exists. Know that there are options available when you have a low VA appraisal.