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!