Refinancing With a VA Loan – Sidwell Mortgage

Refinancing With A VA Loan

A servicemember can use their VA loan benefit to refinance an existing VA loan or to refinance another type of loan (e.g. FHA, USDA or Conventional) into a VA loan.

In refinancing an existing VA loan the servicemember has two options:
1) Obtain an Interest Rate Reduction Refinance Loan; or, 2) Obtain a VA cash-out loan.

VA Streamline (Interest Rate Reduction Refinance Loan)

The Interest Rate Reduction Refinance Loan, or VA Streamline as it’s sometimes known, is specifically designed to permit the servicemember to lower their interest rate and payment, quickly and easily. This is accomplished by VA relaxing the underwriting guidelines and eliminating certain paperwork, including:

No paystubs or W2s are required
No bank statements are required
No home appraisal is required
There is no loan-to-value limitation because no appraisal or value is required.
Underwater homes are eligible (homes on which the servicemember owes more than the home is worth)
The required funding fee is lower than for VA purchase loans
Closing costs can be wrapped into the new loan, meaning little or no out-of-pocket expenses
VA Cash-Out Refinance

VA permits the servicemember to access equity in their home by obtaining a VA cash-out refinance. This is done by the servicemember obtaining a VA loan that’s greater than their current loan, paying off the current loan, and receiving (i.e. pocketing) the difference after the new loan closes. VA will allow the servicemember to refinance up to 100% of the value of the home. Proceeds can be use for any purpose including debt consolidation, traveling, starting a business, college tuition, investment, or any other need or desire the servicemember may have.

The second purpose for the VA cash-out refinance is to pay off a loan that’s not currently a VA loan. For example, assume the servicemember bought a $410,000 home with FHA financing three years ago, and the monthly payment includes $280 for FHA mortgage insurance. After learning more about their VA loan benefit the servicemember realizes that VA does not charge monthly mortgage insurance. By simply refinancing from FHA to VA the servicemember saves $280 per month.

Until the next post … may health and happiness abound!

Questions & Answers

Will VA guarantee an investment property?

Generally speaking the answer is no, but there are exceptions. The VA loan is specifically designed to help servicemembers purchase a home they intend to occupy full-time. However, VA will allow the servicemember to purchase 1 - 4 units as long as one of the units will be owner-occupied. As such, the servicemember can purchase a duplex, triplex or fourplex, occupy one unit, and rent the others. In addition, a servicemember can buy a single family residence, occupy the home for 12 months, then vacate and rent the residence (if there is remaining eligibility on the servicemember’s Certificate, they may even buy another home using a VA loan).

Does VA require a minimum credit score?

No, VA does not have a minimum credit score requirement, but remember VA does not make home loans; VA guarantees loans that are made by mortgage lenders. Even though VA does not have a minimum score requirement, odds are, the lender that makes the home loan does. VA lenders can be more conservative than VA, but not more liberal. This means the lender can impose restrictions that VA does not require. The good news is that there are some VA lenders who underwrite to VA guidelines, imposing few additional restrictions.

Can I have more than one VA loan?

Yes. Let’s assume that you’re stationed at Fort Polk in Louisiana, and you purchase a home in Leesville, using your VA eligibility. After residing in the Leesville home for 4 years, you receive orders to transfer to Fort Irwin in San Bernardino, California. You have 90 days to move and you sell your home in Leesville. Upon selling the home in Leesville your VA loan is paid-off and your full eligibility is restored. You then use your VA eligibility to purchase a home in San Bernardino. Let’s now assume you did not have time to sell the home in Leesville, and opted to keep it as a rental. Assuming you have sufficient eligibility remaining you could also buy a home in San Bernardino. In one instance you’d have two consecutive VA loans (Leesville, then San Bernardino), and in the second scenario you’d have two VA loans at the same time – both are permissible.

May we build a home using VA financing?

Yes it’s possible, but finding a lender who’ll fund a VA construction loan is quite difficult. It’s the proverbial needle in a haystack. Typically the builder or Conventional lender will handle the financing for the construction phase and arrange a VA mortgage when the home is complete. However, here in California Sidwell offers a single loan construction option for servicemembers who are California residents.

Does VA allow 2 veterans as co-borrowers?

Yes. Generally speaking VA permits the following co-borrower arrangements: 1) A veteran and their spouse may buy together; 2) A veteran and their fiancé can buy together (if they’ll be married before the transaction closes); 3) Two occupying veterans may buy together with VA using a portion of each veteran’s entitlement to guarantee the loan; and, 4) A veteran and a non-veteran, who is not the veterans spouse or fiancé, can buy together (this is called a Joint Loan), but only the veteran’s portion of the loan will be guaranteed by VA. In some instances joint loans will have to be submitted directly to VA for prior approval.

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