How To Refinance Via The VA Loan Program (Even If Your Current Mortgage Is Not With The VA)
Refinancing your mortgage can help you in many ways. It can lower your monthly payment; it can get you “cash out” for improvements or repairs; and, it can provide some other tangible benefit such as reducing your loan’s term from 30 years to 15 years.
When you refinance into a new VA loan, though, you get extra benefits. VA loans require no mortgage insurance over 80% loan-to-value (LTV), carry no prepayment penalty, and include an assumption feature that lets you transfer your VA loan to another VA-eligible borrower whenever you decide to sell your home.
Best of all — you can refinance via the VA even if your current loan isn’t a VA one.
About The VA Loan Guaranty Program
The VA Loan Guaranty program was first introduced in 1944 as part of the nation’s G.I. Bill. Backed by the U.S. Department of Veterans Affairs, the program was originally launched to support the homeownership needs of servicepersons returning from war.
Today, the VA loan program supports a host of military borrower-types — not just combat veterans.
For example, National Guard members and reservists are eligible to use VA loans, as are cadets at the Coast Guard Academy, for example.
Via its Loan Guaranty program, the Department of Veterans Affairs promises to “stand behind” a loan, guaranteeing that a mortgage lender will receive repayment of at least a portion of the loan amount should the borrower fall behind or face foreclosure.
In 2012, the VA guaranteed roughly one-quarter of the bank’s potential loss.
This guarantee limits a lender’s lending risk which, in turn, allows the bank to offer better mortgage rates than would otherwise be available. And, because VA loans are available for refinance loans as well as purchase ones, homeowners with any mortgage need can use the VA loan to their advantage.
VA mortgage rates are often much lower than comparable 30-year fixed conventional mortgage rates.
The VA Refinance Checklist
The Department of Veterans Affairs has guaranteed more than 20 million mortgages since the launch of its Loan Guaranty program.
Last year, more than half of those guarantees were linked to a refinance.
If you’re thinking about refinancing into a VA loan — whether from an existing VA loan or from an FHA loan, for example, here’s a quick look at what you need to know.
VA Loan Eligibility Standards
The VA loan has broad eligibility standards. Most active-duty servicepersons, veterans, National Guard members, Reservists and surviving spouses of deceased veterans are eligible to refinance with a VA loan. Discharged and retired servicepersons remain eligible, too.
Others, such as cadets at the U.S. Military, Air Force or Coast Guard Academy, midshipmen at the U.S. Naval Academy and officers of the National Oceanic & Atmospheric Administration, are also among those who are VA-eligible.
Normally, a minimum length of service is required.
Get Your Certificate Of Eligibility
Refinancing into a VA loan requires a Certificate of Eligibility (COE). This is a document which proves that you’re VA-eligible. Certificates can be “ordered” via your preferred VA-approved lender — a process which takes just minutes via a special section of the Department of Veterans Affairs website known as Web LGY.
Alternatively, you may order your own COE via USPS (which may take weeks to process).
VA-backed homeowners making a VA-to-VA streamline refinance will not need to get a new Certificate of Eligibility. Your current COE can carry forward to the new VA loan.
In general, VA loans are not available on vacation homes or rental properties. The Department of Veterans Affairs will not guarantee a loan if the home is not your primary residence.
However, this VA lending guideline has an exception. The VA will allow the refinance of a non-owner occupied home if you or your spouse previously occupied that home at some time in the past. If you were relocated, for example, and your trailing home is still VA-financed, you can be eligible for refinance.
You cannot VA-refinance a home purchased to be an investment.
All mortgage closings require closing costs which may include line-items such title search, recording fees, and underwriting costs. With a VA refinance, many of these traditional costs can be added to your loan amount — and the total closing costs are often lower as compared to a conventional loan. Furthermore, VA loan costs can be added to your loan size so that you bring no cash to your closing.
Lastly, many lenders offer zero-closing cost VA loan options.
VA Refinance Loan Products
There are several types of refinance loans available via the VA. The two most popular are the VA Cash-Out Refinance Loan and the VA Interest Rate Reduction Refinancing Loan (IRRRL) which is also known as the VA Streamline Refinance.
Via the VA cash-out refinance program, homeowners can increase their loan size and receive cash at closing. This cash can be used for any purpose including paying off other debts and other expenses such as school fees and college tuition; or, for home improvements; or, for anything else you want or need.
The VA Interest Rate Reduction Refinancing Loan is another refinance type. Via the IRRRL, VA homeowners can lower their interest rate or switch from an adjustable-rate mortgage to a fixed-rate one. Appraisals and credit verifications are typically not required. The IRRRL does not allow “cash out”.
See Your VA Refinance Options
For homeowners with VA eligibility, the VA refinance program offers low mortgage rates, low closing costs, and, for many homeowners, a mortgage approval process. See what a VA refinance can do for your household budget and long-term housing goals.
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