The VA loan, one of the most popular loan programs in America, was created at the end of World War II by the United States government to help returning service members buy homes. Since then, more than 22 million veterans and service members have taken advantage of this benefit to buy or refinance their homes.
A VA loan is particularly appealing to veteran and military home buyers because of several exclusive benefits, namely, it enables them to buy a home with no down payment or refinance up to 120% of their home. However, many service members have questions about the rules and requirements surrounding a VA loan, and may not understand how this exclusive benefit works when it comes to refinancing their home.
The first thing military homeowners should know is that the Department of Veterans Affairs (VA) doesn’t actually write the mortgage. It simply insures the loan that is originated by the bank or mortgage company. What this means is that the VA guarantees to cover a portion of the loan in case the borrower defaults on the mortgage. The guarantee enables lenders to allow for relaxed credit and income requirements from veterans and service members, making it easier for you to get a loan.
The Benefits of Refinancing with a VA Loan
- Take cash out up to 100% of your home’s value. This can help you better accomplish your home renovation or financial goals.
- Refinance up to 120% of your home’s value. A VA loan is one of the few loan products that can offer this benefit.
- There is no monthly mortgage insurance premium. FHA loans and conventional loans with less than 20% down payment both require monthly mortgage insurance.
- Lower than average interest rates than most other loan types.
- Relaxed credit guidelines. Refinancing can be easier for VA loans; however, different lenders have different requirements for credit scores. For example, Quicken Loans requires a credit score of 620.
- There are no prepayment penalties.
- Foreclosure assistance. Veteran homeowners who find themselves in default can work with the VA for assistance in finding alternatives to foreclosure.
- Roll the funding fee into the refi amount. Keep in mind, there is no funding fee for disabled veterans.
There are three refinancing options for military homeowners who want to refinance to a VA loan. You can reduce the interest rate on your loan with an interest rate reduction refinancing loan (IRRRL), get cash-out financing or refinance your conventional loan into a VA loan.
Reduce Your Interest Rate with an IRRRL
The VA Streamline refinance, also called the IRRRL, is available for homeowners who currently have a VA loan and want to lower their interest rate. This type of refinance typically allows for little or no out-of-pocket costs, close faster and with less documentation than an average home loan.
While the VA doesn’t have specific occupancy requirements for this type of loan, lenders set their own policies. Quicken Loans requires that the property be occupied as a primary home.
Other extraordinary benefits of an IRRRL include:
- Refinance up to 120% of your home’s value
- Paying a reduced funding fee
- Entitlement requirements do not apply
- An appraisal may not be needed
- Certificates of Eligibility (and other documentation) is not required
Cash-Out Refinances and VA Loans
A cash-out refinance is a great option for many veterans and service members looking to refinance their mortgage. It not only lets current VA loan homeowners take out cash of their home’s equity for a variety of reasons – pay for bills, cover emergency expenses, etc. – or enables qualified homeowners to refinance their conventional loan into a VA loan. While it may sound like a home equity loan, it’s different in that instead of adding to your current loan, a cash-out refinance replaces your current loan.
Refinancing a VA Loan From a Conventional Loan
If you are refinancing your current conventional or FHA mortgage to take advantage of your VA loan benefits, it’s not required that you take cash out. However, both cases will be required to go through the same process as you would if you’re getting a VA loan for the first time.
Features of a cash-out refinance include:
- Refinance up to 100% of your home’s value
- Appraisals are required
- You must currently occupy the home
- Must meet credit score and other eligibility requirements
Costs Associated with a VA Loan Refinance
Some lenders may charge reasonable closing costs. These costs may be included in the loan:
- VA appraisal fee (cash-out refinance only)
- Credit report (cash-out refinance only)
- Loan origination fee (usually 1% of the loan)
- Discount points (pre-paid interest)
- Title search and title insurance
- Recording fees
- State and/or local transfer taxes (if applicable)
No commissions, brokerage fees or “buyer broker” fees may be charged when refinancing with a VA loan. The VA does charge a funding fee that covers the cost for the VA to manage the loan program. Because VA loans are paid for by both the government and taxpayer dollars, the funding fee helps to offset the cost of administering the loan. This helps to ensure that the loan continues to require no down payment and no monthly mortgage insurance.
There are some cases in which the VA does not charge a funding fee, but you must match a list of VA-approved situations in order to qualify for exempt status.
VA Loans Done the Right Way
There’s a common misconception that VA loans can be confusing, time consuming and tough to navigate. At Quicken Loans, we make getting a VA loan easier than you think. Our partnership with the VA allows us to work directly with them to get the documents you may need, cutting through the red tape to help keep things moving along.
We also service all of our loans, which means we won’t sell your loan to someone else. When you work with us, you’re with us for the life of your loan. Our cutting-edge technology allows you to access everything you need for your mortgage in one easy-to-access place. We keep things simple!
Get started with your VA loan refinance online or call us at (800) 785-4788 find out if you qualify.
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