VA loans have become a blessing for veterans and active-duty servicemen who don’t want to miss out on super low mortgage rates. But, what if you’re a veteran with a non-VA mortgage? Fortunately, one of the lesser known benefits of VA loans is that qualified veterans with traditional mortgages can easily refinance into a VA loan. Not only does a VA refinance lower your monthly mortgage payment,* but you’ll be able to take cash out of your home’s equity. From the cash-out refinance to the VA Streamline, here’s everything you need to know about VA loan refinances.
Cash-Out Refinancing on Primary Residences
Although the cash-out refinance is much more involved than the VA Streamline, it’s the only one of the two that’s available to those with traditional, non-VA mortgages. In order to qualify for this VA home loan refinance, prospective borrowers will have to go through the standard credit and underwriting qualifying procedures, including evaluations of credit score along with credit history, debt-to-income ratio, appraisal, and income verification. The cash-out refinancing process is similar to what you went through on your first mortgage. The new loan will be paying off your original loan amount and you will now have a different debt obligation with different loan terms and payment amount.
With the VA cash-out refinance, veterans can refinance up to 100 percent of their home’s appraised value, on 1-unit primary residences up to the county loan limits for borrowers with full entitlement from VA. Also a 25% guarantee must be met with equity if over the county loan limit. There may still be some additional restrictions and limitations, so speak with a qualified VA lender and experienced Mortgage Loan Originator for more information about VA refinance loans. At HomeBridge Financial Services, one of our Mortgage Loan Originators can help you learn more about refinancing options.
Officially referred to as an Interest Rate Reduction Refinance Loan, or IRRRL, the VA Streamline was created so eligible homeowners have the opportunity to lower their rates and decrease their monthly expenses. In order to qualify, the homeowner is required to have a VA loan currently and must receive lower interest rates and monthly payments after the refinance. The exception to this rule would be instances where the borrower is refinancing from an adjustable-rate mortgage into a fixed rate. HomeBridge requires a minimum FICO score of 580 and a review of credit history. With a VA Streamline refinance, total costs are capped to keep the up-front costs as low as possible for the veteran. Another great benefit is not needing a home appraisal which helps keep the out of pocket cost low.
Disadvantages of VA Loan Refinancing
Although the pros far outweigh the cons, borrowers should still be aware of any disadvantages associated with VA Streamline or cash-out refinancing. In some instances, refinancing may cause you to add more years onto your mortgage. For example, if you only had 15 years left of a 30-year mortgage, you may need to refinance for another 30-year term, effectively adding on an extra 15 years to your mortgage. Additionally, refinancing a VA loan usually involves fees. Intended to reduce the loan’s cost to taxpayers, the funding fee is a percentage of your loan that’s calculated depending on the loan type and your military category. Although you have the option to finance the funding fee or pay it full in cash, the funding fee must be paid at closing. As mentioned, these “disadvantages” are hardly disadvantages at all- especially since VA loans require no down payment** and no mortgage insurance.
When to Refinance a VA Loan
If you’re considering a VA loan refinance, you should understand that timing is everything when it comes to refinancing. If you don’t plan on staying in your current home for the unforeseeable future, it won’t make sense to refinance. Similarly, a refinance doesn’t make sense if interest rates are soaring. The ultimate goal of a refinance is to help you meet your financing goal: lowering interest rate, lowering monthly payment,* lowering the term of your loan or maybe doing a cash out for an emergency. Some of these options will also help significantly decrease the amount of interest you pay over the life of a mortgage. If you think you’ll achieve this with a cash-out or VA Streamline loan, contact a HomeBridge Mortgage Loan Originator today for more information.
*By refinancing your existing loan, your total finance charges may be higher over the life of the loan.
**100% financing up to county loan limits may be available for purchase loans or 1-unit cash-out refinances. Cash-out not available in Texas. Minimum FICO score requirements apply.