Most people refinance a VA loan to get a lower interest rate and monthly payment, but those things alone are not enough to justify it. There is the issue of timing. There is no point in refinancing if you do not intend to stay in the house long enough to recover the associated costs. It also makes no sense if you cannot get a lower interest rate. Assuming that timing and applicable interest rates are not a problem, you must first determine why you want to refinance your VA loan.
Step 1: define your goal
- lower your interest rate and monthly payment?
- Convert an adjustable interest-rate mortgage (ARM) to one with a fixed interest rate?
- Shortens the term of your existing VA loan?
- Withdraw cash (equity) for home improvement, debt consolidation or other purpose?
- Refinance a conventional or FHA loan to a VA loan?
- Consolidate a first and second mortgage into one VA loan?
You may be able to achieve more than one goal with your refinancing – lower interest rate plus payment for example – but you still need to identify a single “main reason” to refinance.
Step 2: Determine which refinancing program you must use
Once you have a refinancing goal in mind, the next step is to find out which of the two available refinancing options from VA will best help you achieve that goal. Your choices are a refinancing loan with an interest subsidy (IRRRL) or a loan for refinancing cash.
The IRRRL (also known as a VA streamline refinancing or a VA-to-VA refinancing) is specifically designed to simplify refinancing an existing VA loan to get a lower interest rate and lower payment. You can also use an IRRRL to refinance an ARM into a fixed-interest loan or to shorten the term of an existing loan, for example by converting a 30-year loan into a 15-year loan.
An IRRRL must result in a lower interest rate than you paid for the loan that was refinanced. The only permitted exception is refinancing an ARM to a fixed-interest loan. In that case the interest can go up. In most cases, an IRRRL results in a lower monthly payment. Depending on the interest rate cut, your payment may even increase if you refinance a 30-year loan to 15 years.
The main features of an IRRRL include lower interest and payment, less paperwork and lower closing costs. Go here for more information about IRRRL.
Regarding your second option, the primary purpose of disbursement refinancing is to make it possible for you to withdraw part of the assets that you have built up in your existing VA home loan. You can use the money you use for a home improvement project, pay off debts, go to school or use it for other purposes.
The payout option with payout can also be used to refinance a conventional or FHA loan to a VA loan (assuming you are eligible for a VA loan). Depending on the lender, you can also use this option to combine a first and second mortgage into one VA loan.
The main characteristics of a cash-out refinancing include 100% financing and standard (capped) VA closing costs. Cash payouts generally do not offer lower paperwork, which occurs with an IRRRL. Go here for more information about re-paying cash.
Step 3: find a lender
Once you know which VA refinancing option meets your needs, it’s time to find a lender. Unfortunately, the VA does not offer much guidance in choosing a lender. It publishes a webpage with quarterly lists of the top 300 VA lenders in different categories per volume. You do not need to use the lender who financed your original VA loan, but it makes sense to obtain the interest, loan costs and available terms from that entity, especially if you have been satisfied with the lender so far.
You must establish a list of different lenders approved by the VA to contact. (The websites of lenders indicate whether the lender is “VA approved”.) It is worth noting that many lenders offer VA loans, but not all are VA approved. VA approved lenders are better informed, offer more services and have more authority than other lenders. This can make your refinancing approval much more flexible and prevent your application from being rejected because the lender was not aware of any obscure VA rule.
The best way to check rates, according to MilitaryTimes, is via a phone call. You can organize your search as follows: “I need a quote for a 30-year fixed-rate loan of $ 150,000 with no points. My credit is excellent. State your allowable VA costs.” Of course, replace your own relevant information when checking.
Step 4: send paperwork
From this moment your lender will guide you, although it is important to know what to expect. The next step is to submit the correct papers depending on the type of VA refinancing option that you have chosen.
As mentioned above, the IRRRL offers less paperwork and lower closing costs. The payout refinancing has more typical VA requirements, similar to those of your original VA loan. This may include the need for an assessment, credit and employment verification and other items.
If you refinance an FHA loan or a conventional loan to a VA loan, you need a certificate of fitness. If you don’t have one, your VA-approved lender can get this for you, or you can get it yourself. More information is available here.
Step 5: close
The closing is the final phase of the refinancing process, when papers are signed and your new loan takes effect. A part that deserves special mention is the SA financing contribution. Almost all veterans pay a financing surcharge upon closing. It is a percentage of the total amount borrowed and can go up to 3% for certain borrowers.
In addition to the financing provision, the other potential credit costs that are settled at the closing include the costs of the assessment, the credit report, the state and local taxes and registration fees. All these costs can be added to the loan, but this can cause the costs to exceed the fair market value of the property to be refinanced, reducing the benefit for you.
Know that the closing costs for an IRRRL are lower than for a refinancing with cash. Although no lender is required to give you an IRRRL, a VA is neither a subscription nor a credit insurance required. If you have questions during the closing process that the lender cannot answer, the SA proposes to contact the relevant regional lending center.
The Bottom Line
No matter how complicated it may sound, the biggest benefits of refinancing a home loan are the ability to refinance up to 100% of the value of the home and the fact that you don’t have to pay a mortgage insurance. Benefits are of course no reasons. They appear below the list of goals in step 1. If you define your goal, follow the steps described above, find a reputable lender and complete all required tasks, then you have made your way through the wilderness of the refinancing organization, relatively undamaged. (For more, see Buying a home with a VA loan and The Unique Benefit of VA Mortgages .)