There are different reasons for veterans and active-duty service members to consider refinancing on a home loan guaranteed by the U.S. Department of Veterans Affairs. There are several types of refinancing options to consider if you have a VA loan. Let’s take a look at the benefits that various VA refinance types have to offer. Knowing what type of VA loans are there for your benefit can help you make the best choice for your particular situation.
IRRRL or Streamline Refinance
An Interest Rate Reduction Refinance Loan (IRRRL) is a great refinancing option that is specifically meant to make an existing mortgage more affordable by lowering the interest rate to current market rates. It is an attractive option for VA home loan borrowers due to its easy accessibility. Plus, its requirements are more lenient compared to more traditional mortgages. The VA streamline refinance loan allows qualified borrowers to refinance to lower interest rates at less cost and with less paperwork than their original VA loan.
Another reason an IRRRL is popular with active and retired service members who are homeowners is that it allows them to reduce their overall repayment costs by refinancing to a 15-year mortgage from a 30-year mortgage. Conversely, it is also possible for qualifying homeowners to reduce a 30-year term mortgage to a 15-year term mortgage to pay off the total loan amount faster. Additionally, refinancing through an IRRRL can allow you to lock in a fixed rate and consistent monthly payment by switching from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. Overall, an IRRRL is a great option for homeowners looking to put themselves in a better position financially.
There are several qualification requirements to be aware of when considering eligibility for an IRRRL:
- You must refinance from an existing VA loan as part of this veterans entitlement program
- You will need to obtain a Certificate of Eligibility (COE) from the original VA loan
- Your lien holder must agree that a first mortgage on your home takes precedence over a second mortgage (if you have one), so your new VA loan will be a first mortgage
- You must demonstrate that you occupied the home at one time
- You need to be able to show that no more than one payment was more than 30 days past due over the previous 12 months has occurred (although this can be overridden with assistance from your lender)
If you meet the above criteria, also be aware of the VA funding fee (a fee that allows for the continuance of this program) and closing costs.
Cash-out refinancing allows you to transform the equity you have built into your house into cash. For a A VA cash-out refinance, an existing loan is replaced with a VA loan. If you need access to a sizable chunk of cash, such as to consolidate your debt or contribute towards another major life expense (e.g., college tuition, weddings, family vacation, etc.), a cash-out refinance loan is worth the effort. Most VA lenders will allow a cash-out loan amount up to 90% of the appraised value.
A cash-out refinance requires more paperwork than an IRRRL. Here is a list of documentations needed when applying for a cash-out refinance:
- Copies of paycheck stubs for the most recent 30-day period
- W-2 forms for the previous two years
- A copy of your federal income tax returns for the previous two years (required by many, but not all lenders)
This loan also requires that an appraisal of your home be performed to determine the built-in equity and value of your home. And, as with an IRRRL, a cash-out refinance requires that borrowers pay a VA funding fee at closing. Interest on the loan and additional closing fees should also be taken into consideration.
Conventional Loan to VA Loan Refinance
It is possible to refinance other existing loan types, including Federal Housing Administration (FHA) and conventional mortgages, to a VA loan. The VA loan program offers competitive interest rates, does not require a downpayment, and does not require that homeowners pay for private mortgage insurance (PMI), since VA loans are federally backed. This can save you up to 5% interest on accumulated costs associated with a conventional mortgage. Lastly, refinancing to a VA loan also gives you the option down the road to refinance to an IRRRL or do a cash-out refinance.
There are several requirements to be aware of when switching from a conventional loan to a VA loan:
- You must have completed 90 days of active duty military service during a named conflict, or six years of service in the National Guard or Reserves, or 181 consecutive days of active duty during times of peace
- You may also be eligible for a VA loan if you are married to a servicemember who died in the line of duty or as a result of a service-related disability
- You will need to apply for a COE.
- You will need to pay a funding fee and other closing costs
How Can The Home Loan Expert Help?
Hero Loan, The Home Loan Expert’s VA Loan Program. Helping borrowers refinance their homes to be in a better financial position is the cornerstone of our business.We are proud to give back to our veterans and their families through our stellar customer service and other community involvements, like the Fisher House Foundation.
We take the stress out of the paperwork involved and are happy to complete it on your behalf. We offer fast and efficient services that can get you approved for a loan in less than 5 minutes with closing periods in as little as 14 days.
Stop wondering what types of va loans are available and call us today at (866) 222-0219 to speak with a VA loan representative about the various VA loan types. You can also connect through our live chat option to speak with a lending expert.