You can refinance your U.S. Department of Veterans Affairs (VA) mortgage loan to reduce your interest rate, cash out equity or otherwise consolidate your debt. VA mortgage refinances still must meet the department's credit, occupancy and income requirements.
The Department of Veterans Affairs backs VA loans, protecting lenders against defaulted loans. A veteran must meet "entitlement" requirements, meaning the veteran has logged enough service time for a full or partial loan guarantee. Guarantee amounts are the maximum loan available in the program. Full entitlement usually insures loan values up to $424,100, but the amount can vary in higher-cost markets.
VA-backed mortgages are owner-occupancy loans for single-family houses, condos and manufactured homes. While no minimum credit score is required, lenders prefer borrows to have good credit and a debt-to-income ratio of less than 41 percent. That means all your debt obligations – including mortgage, car, student loans, credit card debt and even child support – cannot exceed 41 percent of your income.
These requirements are standard for both new purchases and refinances. Veterans can reuse VA loan eligibility; it's not a one-time benefit.
VA Streamline Refinance
The VA streamline refinance, also known as the VA Interest Rate Reduction Refinance Loan (IRRRL), refinances a home mortgage that is already a VA loan. Home appraisal and credit checks are not required. There are no out-of-pocket closing costs either.
While the IRRRL usually reduces interest rates on existing loans, it can streamline the process of refinancing an adjustable rate mortgage (ARM) without strict underwriting. In this instance, monthly payments might increase into a fixed cost. No cash is accessible in this refinance. It also has a funding fee of approximately 0.5 percent of the loan amount. Most homeowners finance the fee, adding it into the loan.
The VA Cash-Out Refinance Loan allows homeowners access to equity in their house while possibly lowering interest rates in low-interest markets. Up to 100 percent of the home's appraised value can be refinanced. There is no private mortgage insurance (PMI) requirement, and the VA limits closing costs. Out-of-pocket expenses include the required appraisal.
Conventional to VA Refinance
Even as a veteran, you might have a conventional home loan. For example, you might have maxed out your entitlement on a different home that you still have a mortgage on. In this case, once you pay off the first VA loan, you restore entitlement. When entitlement is restored, you can then refinance your conventional loan under a VA program.
If eligible, this becomes a VA Cash-Out Refinance Loan, following those guidelines.