VA home loans are a great option for veterans and their families looking for an attainable, affordable path to homeownership.
What many existing homeowners who are utilizing a VA-backed loan may not realize is how they can benefit from refinancing their existing loan. If you're wondering how refinancing a VA home loan works, here is everything the experts want you to know:
What is refinancing?
If you currently have a mortgage, you can replace it with a new loan that essentially pays off the debt of the previous loan with more favorable terms. The Balance explains that, in general, most homeowners will refinance to improve their existing loan. This is especially common when interest rates drop and individuals want to lock in a new mortgage with lower monthly payments.
Refinancing can also help homeowners shorten the term of their lease or change from a fixed-rate to an adjustable-rate mortgage (or vice versa). While most people associate refinancing with conventional mortgages, it's also an option for government-backed loans, like a VA home loan.
Two types of VA refinance loans
While refinancing a conventional loan is a rather cut and dry process, there are two distinct avenues to take doing so with a VA home loan. NerdWallet broke down the two types of VA refinance loans as well as their distinct benefits:
Interest Rate Reduction Refinance Loan (IRRRL)
Also known as a VA streamline, this refinancing option is ideal for veterans and family members wanting to benefit from lower interest rates. You must already have an existing VA mortgage in order to apply.
What's attractive about this refinancing option is that it's available even if the home in question is not your primary residence. If you're stationed in a new area but want to keep your original home, you can still refinance it as long as you are able to provide proof of former residency.
With the ability to roll refinance fees into the new loan while setting up more favorable terms for future payments, this is the perfect option for homeowners with a VA home loan wanting to make changes to their future payments and conditions.
VA cash-out refinance
If you want to tap into your current home's equity, this is the loan option for you. Unlike an IRRRL, your current loan does not have to be from the VA in order to qualify. If you seek to bring your conventional loan into the VA program, this is one of the best ways to do so.
You may be able to finance up to 100% of the appraised value of your home with a VA cash-out refinance, NerdWallet reported. However, the home in question must be your primary residence. A trusted financial advisor can help you understand your options and how much you can realistically expect your home to be refinanced for.
Ultimately, the best refinance for your VA home loan depends on your immediate needs and long-term goals.
Who is eligible?
A VA streamline can only be done for a current VA-backed home loan. This means, you have already qualified for a loan through the U.S. Department of Veterans Affairs and makes the entire process easier. While lenders may set their own qualifying criteria - like a minimum credit score - this loan is very attainable for current VA home loan owners.
A VA cash-out refinance, on the other hand, can have a slightly more in depth eligibility process - especially if you are bringing a non-VA loan into the fold. The U.S. Department of Veterans Affairs lays qualifying criteria for this kind loan. You could be eligible if you:
- Meet the eligibility requirements for a VA-backed home loan (or already partake in one)
- Meet the VA's and your lender's standards for credit
- Live in the home you're refinancing with the loan
If you're switching from a conventional loan to this government-backed loan, the VA can help you determine your eligibility and what documentation you may need.
When can a VA home loan be refinanced?
In the best interests of lenders and homeowners alike, the VA has set seasoning standards for refinancing. Most lenders will look to ensure the first monthly payment of the loan being refinanced was made 210 days (around 7 months) or more prior to the closing date of the refinancing loan. Additionally, six payments need to have been made on the loan in question.
These are the minimum requirements for when a VA home loan can be refinanced. Always discuss your current situation and goals with a financial advisor before deciding when the best time to refinance is for you.
What you need to apply
Each refinancing option also comes with its own distinct qualifying criteria specific to both the VA dn each individual lender. Before applying, make sure you understand what is needed from each.
IRRRL - You will already have a VA loan and therefore your Certificate of Eligibility. Beyond that, The Mortgage Reports explained that lenders will want information on your payment history and housing. They want to ensure you have no more than one 30-day late payment on your current loan within the past year proof of your occupation on the property in question.
VA cash-out - This loan definitely requires more paperwork. If you don't have a VA loan, you will first need to qualify for one and receive a Certificate of Eligibility. According to the VA, your lender will then need copies of your paycheck stubs from the most recent 30-day period, W-2 forms and copy of your federal tax returns from the previous two years and any other information required by your individual lender.
Each lender can set different qualification criteria beyond the standards accepted by the VA. Keep this in mind when choosing who to refinance from.
VA home loans with Veterans Choice
If you want to refinance your VA home loan, look no further than Veterans Choice. Dustin DiMisa, CEO of InterContinental Capital Group created Veteran's Choice with those who have served our country in mind. Our program offers less expensive financing and refinancing options to veteran homebuyers, whether it's their first time purchasing a home or they're settling into their final retirement oasis.
If you have more questions about VA home loans and the homebuying process, reach out to one of the experts at Veterans Choice today.