The VA refinance loan is a very powerful tool awarded to qualified veterans and military service members. There are basically two types of VA refinance loans, Interest Rate Reduction Refinance Loan (IRRRL) and the Regular VA refinance. There are many advantages to either of these products that aren’t offered by other types of loans including Conventional and FHA. A few of these advantages include no monthly mortgage insurance payments, lower credit requirements and one of the greatest advantages no other type of program offers – no equity requirements. You can refinance up to 100% and in the case of a Regular Refinance, you can get cash out up to 100% of the value of your home.
2 types of VA Refinance Loans
There are 2 types of VA Refinance loans. The most popular is the VA Streamline Refinance or “IRRRL” (Interest Rate Reduction Refinance Loan). The other is called a “Cash Out Refinance” or “Regular Refinance”. Each have their own rules set by VA and each one serves a specific purpose. Here you will see an explanation of each.
VA Streamline Refinance (IRRRL)
VA streamline refinance loans or Interest Rate Reduction Loans, created by VA to give you the opportunity to refinance your current mortgage to a lower rate than you have currently. This option is only available to veterans or service members who currently have a VA mortgage to be refinanced. These are not cash out loans. The maximum “cash-in-hand” is limited to $500 at closing. If you are looking for a VA refinance where you can pull out cash, refer to the Regular refinance option.
VA Streamline refinances are the easiest loans to do true 100% “No Cost” refinances when the lender doesn’t charge fees. Be aware that some lenders will try to pass off no cost VA Streamlines by raising the rate. Generally this is not necessary. So be sure to compare rates, “Lender fees” and loan amounts with at least 2 lenders. With a well structured IRRRL, you should get maximum benefits on rate reduction while having no out of pocket costs and financing very little if any more than your loan pay off.
Rules of VA Streamline Refinances
VA does not require an appraisal*, income verifications, employment verification*, credit report* or termite report
The veteran cannot receive anything more than $500 cash back at closing.
The mortgage must be current on payments for the previous 12 months and up until funding of the loan.
Any other liens must be subordinated, meaning the new VA loan must still be in first lien position.
* Although VA sets guidelines specific to streamline refinances, they leave it up to each individual lender to make additional requirements to the loan approval, such as an appraisal, verification of employment or any additional requirements at their discretion. It is best to consult with the lender before proceeding with an application if any of these potential requirements might create concern about getting approved for a VA streamline refinance.
VA Regular Refinance Loan Option
This option is very attractive in its own way as it is extremely flexible. Unlike the streamline refinance, a veteran is allowed by VA to take out cash up to 100% of the value of the home. Again, consult with the lender to see if they additional restrictions. Most lenders will only allow up to 90% when taking cash out. The same applies for refinancing a Conventional loan into a VA loan. The veteran is allowed by VA to refinance any mortgage up to 100% of the value of the home. Yet some lenders won’t allow anything more than 90%. This would make it impossible to refinance for most homeowners. Being able to refinance up to 100% of the value of the home is an amazing advantage, especially for veterans that may have purchased their home using a conventional 80/20 loan or need extra cash to reduce their monthly outgo.
What is the Funding fee charged for a VA Refinance?
VA sets different requirements for funding fee charges on VA refinance loans. The streamline is set at 0.5% times the loan amount, regardless of the fact that it will be a subsequent use or that the veteran was active duty versus Reserves. However, the regular refinance has specific funding fee requirements which rely on those factors. In most cases it’s 3.3% for subsequent use and 2.15% for first time use. Refer to “Funding Fee Requirements” for more information on this subject.
5 best reasons to Refinance into a VA Loan
- Refinance your current VA loan with No Appraisal required
- You can refinance a Conventional Loan or FHA loan to 100%
- Pull cash out up to 90% with NO MORTGAGE INSURANCE
- Lower rates than most Conventional and FHA Loans
- NO FEES
Top 10 Reasons People Refinance
- Lower Rate
- Eliminate Private Mortgage Insurance
- Combine 1st and 2nd Mortgage
- Use equity for investment needs
- Consolidate Consumer Debt
- Convert from Fixed Rate to Adjustable Rate Mortgage (ARM)
- Convert from Adjustable Rate to Fixed Rate Mortgage
- To Shorten the Term of a Note
- Use Equity to Pay for a Child’s Wedding
- Divorce Situation or Change of Title
Other reasons not quite in the top 10 are Birth of child, College tuition, medical procedures, vacations, & clean up credit for a prospective employer.