All About VA Loan Refinance
Are you an active military member, a veteran, or a spouse of one? If so, you are probably qualified to apply for a VA-backed mortgage loan! You may even be able to refinance up to 100% of your home’s value, which can be advantageous compared to conventional loans and refinances.
A VA loan refinance is usually much more flexible than other programs. Although, you do need to be military personnel and meet certain requirements and prerequisites. Here’s everything you need to know about VA loan refinances!
VA loan refinance definition
Just like any other type of refinancing, a VA refinance lets you replace your existing loan with a new mortgage. This can be beneficial in terms of providing you with a lower rate or cashing out your equity. This type of refinancing also often doesn’t require you to conduct a new appraisal.
The great thing about a VA loan refinance is that you can use it to change your non-VA mortgage with a VA loan, as long as you meet the eligibility requirements. These requirements are set by the Department of Veterans Affairs (VA). You or your spouse also need to possess a valid Certificate of Eligibility (COE) and meet the credit and income levels that your lender states.
Different types of VA loan refinance
Short for interest rate reduction refinance loan, an IRRRL can be a great option if you’re looking to pay off your mortgage faster, save on interest, or switch to a fixed-rate loan. Typically, you won’t need to appraise your home again or submit income documentation.
VA cash-out refinance
This cash-out refinance program is made especially for borrowers on a VA loan. It lets you cash out a maximum of 90% of your home value, which is around 10% more than a conventional loan!
VA regular refinance
Moreover, a VA regular refinance lets you borrow up to the entire amount of your home’s value. You can even roll the closing fees into the final amount or repay an FHA loan too.
VA energy-efficient mortgage refinance
A VA energy-efficient mortgage, or EEM for short, can be used for any home improvements relating to energy efficiency or going green. This includes things like installing solar panels, weatherproofing your home, or adding new insulation systems.
VA renovation and supplement refinance loans
There is a specific option reserved for those of you looking to renovate your home or undertake other major home improvement projects. This is where the VA renovation loan can come in handy. Meanwhile, a VA supplemental loan may be better if it’s a smaller maintenance project.
Benefits of a VA loan refinance
• It is usually possible to forego income documentation and home appraisal, which will save you some money on the closing costs
• The maximum amount you can tap from your home equity is higher than a conventional mortgage
• Take advantage of the EEM loan to roll renovating costs to your refinance loan
• There’s no need to pay for mortgage insurance
Drawbacks of a VA loan refinance
• The VA funding fee may amount to around 3.6% of your entire loan amount
• There are very detailed and specific requirements you need to meet to qualify for a VA loan
• It may not be feasible to refinance directly after taking out a VA loan
• Home appraisals on a VA loan may cost more than regular FHA loans
How a VA IRRRL works
As we have mentioned earlier, you can use a VA IRRL to replace your VA loan with a new one. This lets you reap benefits including a lower mortgage rate, reduced monthly payment, or even both. It also allows you to switch from an adjustable rate to a fixed-rate loan.
Plus, an IRRRL is quite easy to apply for and navigate, which makes it a favorite among lenders and borrowers alike. One thing to note is that the Department of Veterans Affairs only approves of refinances that can give you a real financial advantage. This means you should be either reducing your rate or monthly payment.
VA cash-out refinance
If you’re thinking of taking on a new home improvement project or paying off another loan, it can be a great idea to opt for a VA cash-out refinance. You can take out the cash from your home’s value to pay for tuition and other financial needs, or even to refinance a non-VA loan into a VA loan.
Similarly, you can use the EIM alongside other VA refinance programs so you can roll the costs of energy-efficient projects to your new loan amount.
How much does a VA loan refinance cost?
VA loans have roughly similar closing costs to a VA refinance, although there are still some unique fees that you might have to pay.
Also, you can apply for a funding fee exemption if you have VA disability income that is associated with your services.
• Funding fee (0.5% to 3.6%): The funding fee will cover the tax-related costs to your VA loan
• Appraisal fee: You may need to pay for a home appraisal and the report when applying for a VA loan refinance
• Origination fee (Max 1%): This is to offset the costs for loan officer commissions, credit reports, tax monitoring, and other operational expenses
• Other closing costs: While the exact amount may vary depending on your loan amount and situation, this usually include things like title insurance, discount fees, and homeowner’s insurance
Making the most of your VA refinance
When it comes to applying for a VA loan refinance, it is essential to shop around and compare rates and offers from multiple lenders. This is because not all lenders can legally offer VA loans, as only some are approved.
While VA rates are typically lower than conventional refinance rates, it is still worth it to have a few different options. We recommend comparing around four lenders. Then, you should study how their rates and closing costs fare with one another.