Today, there are many options available for veterans when it comes to refinancing a home. While available access to these refinancing options is a blessing, choosing the best refinancing loan for your individual circumstance amidst a sea of options may feel like a curse. Remember, the reason to refinance a home is to put yourself in a better financial position. Let’s take a look at if a cash-out option or VA streamline refinancing is the best choice for you.
What Is a VA Cash-Out Refinance Option?
A VA cash-out refinance loan is for current or veteran military service members who want to tap into their home equity or refinance another type of mortgage into a VA loan for a lower rate. It takes equity out of your home in the form of cash, which can be used however the homeowner sees fit, from embarking on home improvement projects to paying off high-interest debt.
To qualify for a cash-out loan guaranteed by the U.S. Department of Veterans Affairs, you will need to obtain a certificate of eligibility. The certificate tells a lender you meet the military service or surviving spouse requirements to get a VA home loan. The quickest way to get a VA certificate of eligibility is usually to ask a VA-approved lender to obtain it for you. While you do have the option of mailing in a form or requesting a certificate through the eBenefits portal, a VA-approved lender can access your information through a database and provide you with quick results. Using a trusted VA lender can take the hassle out of paperwork and simplify the process.
Who Should Consider a Cash-Out Refinance and Why?
A cash-out refinance offers veteran homeowners a great opportunity to pay down certain debts from the equity they have built into owning their home. Through a cash-out refinance loan, borrowers can take advantage of putting 80–90% of their house’s equity towards big-ticket items. Whether you want to put it towards paying for a wedding, your child’s college tuition, a home improvement project, establishing a savings and investments portfolio or paying off credit cards to consolidate your overall debt and raise your credit score, the choice of what to do with that cash is truly up to you.
Additionally, a cash-out refinance loan can also be used as a way to refinance a non-VA loan into a VA loan, which often comes with better terms and conditions compared to other home mortgage loans. For instance, it can allow veteran homeowners to lower their interest rates or switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. A fixed-rate mortgage carries the same interest rate for the life of the loan, offering better financial predictability and stability. Lastly, switching to a VA loan through a cash-out refinance option allows veterans to finance closing costs into the new loan as long as the lender’s requirements for loan-to-value ratio are met. Clearly, there are some definite benefits to a VA cash-out refinance.
What Is a VA Streamline Refinance?
We know comparing your options for a cash-out versus streamline refinance loan can seem confusing. Understanding them will help you make that decision with ease. A VA streamline refinance is also known as an interest rate reduction loan, or IRRRL. It can be helpful to veterans for a couple of major reasons. A VA IRRRL is used to refinance one VA mortgage into another. It is an improvement on your old VA loan. With it, you can get a lower rate, a lower payment, or both. You can also move from an adjustable-rate loan (ARM) to a fixed-rate loan.
Who Should Consider a VA Streamline Refinance?
To be eligible for for an IRRRL you must:
- already have a VA-backed home loan, and
- be using the IRRRL to refinance your existing VA-backed home loan, and
- be able to certify that you currently live in or used to live in the home covered by the loan
VA Streamline Refinance Pros and Cons
If you are able to meet those eligibility requirements, a VA streamline refinance loan is a great option for veterans for several reasons. People who are looking to do the following should seriously consider a VA streamline refinancing option:
- Switch from an ARM to a fixed-rate mortgage. An ARM is best viewed as a short-term mortgage plan that you should get out of by moving or paying off the loan before the introductory rate expires (which is most likely 10 years or less). Otherwise, it has interest rates that may increase over time. A fixed-rate mortgage, on the other hand, is a home loan with an interest rate that stays the same. The main benefit of fixed-rate mortgages is that they have relatively predictable payments. Each month’s principal and interest payment is the same amount, for as long as you have the loan.
- Lower your monthly mortgage payment and other costs. A VA Streamline Refinance resets your mortgage with a lower interest rate and monthly payment. Additionally, there is no private mortgage insurance (PMI)required. There is no appraisal requirement which can save borrowers $500 dollars. Closing costs are also lower at about 1-3% of the total loan
- Fund an Energy Improvement Mortgage (EIM). An EIM allows you to add the cost of some energy-efficient improvements to your refinance loan. Be aware that you’ll be subject to an energy audit after six months, and there may be additional underwriting requirements.
How Can The Home Loan Expert Help?
Hero Loan, The Home Loan Expert’s VA Loan Program. Hero Loan is dedicated to helping veteran homeowners refinance their homes to position themselves to be better off in achieving their financial goals. We believe in giving back to our veteran community and support veterans through the Fisher House project. We are proud to support veteran-owned businesses and local events that contribute to active duty military, veterans and their families.
Our family-style business recruits and trains local community members to become refinancing cadettes in our home-lending squadron. We do this to secure mortgage loans that promote greater financial security and stability for our deserving veterans. Our customers matter to us, our veterans are our heroes. This is why we guarantee an experience that goes above and beyond when it comes to customer satisfaction.
Call us today at 800-991-6494 to speak with a representative or fill out an application to find out more if a cash-out or VA streamline refining option works best for you!
Chris
