Do You Qualify to Refinance to a VA Home Loan? Here Are the Guidelines
The Federal Government and the Veterans Affairs (VA) offer life-saving mortgage loans to service members at attractively low mortgage rates and flexible loan terms through VA home refinance programs.
With today’s poor economic climate, it might be a good time to consider if a refinance to a VA loan is right for you. You can enjoy all the perks and benefits that come with it; including lower interest rates and a cash-out option.
Benefits of VA Refinance
Generally speaking, VA refinances home loans are far more beneficial compared to conventional loans, not only because they are tailored and targeted for servicemen and women, but also because they come with real advantages that save you money.
The biggest advantage of VA refinance is lower interest rates. As long as you’re eligible, you can either refinance your existing VA loan, that has higher interest rates, or take advantage of today’s lower interest rates. You also have the option to refinance any other loan that you have (not necessarily a VA loan) to a VA loan.
The low VA refinance loan rates are not the only beneficial feature of VA refinancing. You can also refinance up to 100% of your house’s value, without having to pay any mortgage insurance. That means more money in your pocket every month.
Unlike many other refinance applications, the VA doesn’t require any appraisal or credit underwriting. However, while it is not required, some lender do ask for these, and should tell you when you start your application if they are necessary.
If you already have an existing VA mortgage loan, you don’t have to show proof of eligibility again. Your VA email address should be enough to confirm that you’re able to apply for refinancing.
Get all these benefits with ‘no cost’ to you. It is possible to refinance your house without spending any money out of pocket. This is because the VA limits the type of fees that your lender can charge. For any other cost, you have the option of paying them upfront or rolling them into your new loan.
In fact, if you need cash now, you can opt to take a cash-out VA refinance, where you can use part of your home equity to get money in your bank now. There are no restrictions what you use the money for so you can spend it as you like.
VA Refinance Requirements
Now you know the benefits of VA refinance, the questions is, do you qualify?
Qualifying for VA refinancing is easier than with conventional loans, both with the original VA mortgage loan application and the refinance process. Here are the specific VA home refinance requirements:
- The refinance loan is available for veterans, active service members, Reservists, National Guard members, and their eligible spouses.
- If you are an active service member, you must have served on active duty for at least 181 days during peacetime or 90 days during wartime. Reservists and National Guard members must have served for at least six years, or have been called on active duty. Then you are eligible after 181 days of peacetime service or 90 days during wartime.
- Surviving spouses of veterans, who have died in the line of duty, or due to a service-related disability, may also apply for a VA refinance.
- To apply for a VA streamline refinance you must be a holder of an existing VA mortgage loan. In this case, a certificate of eligibility will not be required.
Your Refinance Options
What VA refinance options are available?
- Interest Rate Reduction Refinance LoanAlso known as IRRRL or VA streamline refinance, this option allows you to refinance your existing loan to lower your interest rate. This will decrease your monthly payments, saving you money to use or pay off your mortgage.You are eligible for an IRRRL if you currently hold a VA loan. Alternatively, you can also refinance an ARM (adjustable rate mortgage) to a fixed rate mortgage under this option.
- VA Cash Out RefinanceThe second option is a VA refinance with cash out. This is a perfect option if you are low on cash, or need a little extra now to pay off a debt or make a purchase. With this option, you can refinance up to 100% of your house’s value, pay off the amount due on your current mortgage, and then use the remaining cash for whatever expenses you have.It is not limited to existing VA loan holders. If you were eligible for a VA loan, but choose to take out a conventional or FHA loan, you can still opt for this refinance option.
Other VA Refinance Guidelines to Know
Compared to conventional refinance options, VA refinance rules are more relaxed.
To start your application process, just go to your existing lender or a new one of your choice. If you already have a VA loan, your lender will be able to confirm your eligibility with your email and get started immediately.
Although the VA doesn’t technically set loan limits, most lenders try to limit their risk of default by capping your loan limit at $417,000. If you live in a high-cost area, like Hawaii, you may be able to get a new mortgage as high as $625,500.
VA loan zero down is the most common practice, meaning you don’t have to pay anything initially. This is an attractive option for many people, but if it makes sense for you to put make a down payment, that is also an option. Generally, the higher your down payment, the lower your interest rates.
Fees and costs
VA refinance costs are among the lowest of any mortgage loan. The VA only requires you to pay a one-time funding fee that is 1.25% of your loan amount. You can pay it in cash or roll it into your new loan.
VA refinance rates are required to be lower than what you were paying before. This doesn’t apply if you take the IRRRL option, which allows you to shorten your loan term from 30 to 15 years. Be sure to talk to your mortgage company if you have any questions which the best option is for you.
Occupancy of the home
If you are refinancing from an FHA convention loan, the house must be your primary resident. However, if you’re doing IRRRL refinancing, you just need to show you had previously lived in the house when you took out your VA loan.
The cash out option
If you need money now, borrow against your home equity and use the money as you wish. This option is not available with an IRRRL though.
The best time to refinance to VA
If you want to take maximum advantage of the VA refinance program, you should understand that timing is the most important factor of the whole process. Here at TJC Mortgage, we know it all starts with a home loan, but we’re happy to help you get the most of a refinance option.
We’ll take a look at your personal situation, discuss current interest rates to see if they’re high, or lower than they’ve been in recent times. Give us a call and get started saving money today.
Disclosure: Even though a lower interest rate can have a profound effect on monthly payments and potentially save you thousands of dollars per year, the results of such refinancing may result in higher total finance charges over the life of the loan.