For those property owners who have a VA loan, one that is backed by the U.S. Department of Veterans Affairs, it is possible to refinance these loans to new terms. Refinancing a mortgage is the process of obtaining a new loan to pay off an existing one. The benefits of doing so include reducing interest rates, reducing monthly payments, and, in some cases, taking cash out to use for other needs. VA refinance mortgage options are important to compare. Some may be a better fit for some borrowers than others are.
VA Refinance Mortgage Options
For those who have a VA loan, it is possible to refinance in many cases with a VA refinance mortgage. There are some fees involved in the process. However, many people will find that a VA refinance mortgage will allow them to secure lower interest rates or better terms than they may have qualified for previously.
Before doing so, it is important to compare several options for the VA refinancing loan process. Here is a closer look at a few of those options.
Non-Streamlined Refinancing Mortgages
A borrower with a conventional loan, not a VA loan, may find that non-streamlined refinancing mortgages are the popular option. In short, this process simply means that all of the required documentation for obtaining the loan must be obtained again. Non-streamlined refinancing mortgages is one option for VA loan holders. In this process, it is possible to secure a new loan to replace the existing loan from other lenders.
During the process of using this type of refinancing option, consumers will need to provide information about their eligibility. That means providing information on their current income, their current expenses, as well as the value of the property. In a non-streamlined refinancing loan, the consumer also must show the lender that the home itself is worthy of the loan’s value. This means having an inspection done as well as an appraisal. In short, the process of using a non-streamlined refinancing loan is very much the same as obtaining the original loan again.
This process can be a bit more time consuming than in other options (to be discussed shortly). However, it may be beneficial to some borrowers because it can open the door for more lenders to offer loans.
A Cash-Out Loan
One of the reasons for VA refinancing loan terms is to take cash out of the home. This is possible with non-streamlined refinancing loan options. A cash-out loan allows the consumer to take out a new loan that not only pays off the existing mortgage debt but also provides them with cash in hand to use for other needs. This is only possible, though, when there is equity in the home. Consider how this may work.
If the property owner owns a home that is worth $250,000 and he or she has a loan on that property that they still owe on with a balance of $100,000, this means the property owner has about $150,000 worth of equity. He or she has several options.
One of the options is to secure a new loan for just what is owed, in this case, just the $100,000 and perhaps a bit more to cover the loan’s costs. This would mean a new loan term and interest rate for just that balance. For those who obtained a loan long ago when interest rates were higher, refinancing the existing balance at a lower interest rate and for a shorter loan period may be ideal. This can help to save money.
However, the property owner also can obtain a new loan for $250,000, assuming the property appraises at that value. This is a cash-out refinance. It is available as a VA refinance loan. The benefit here is that the homeowner can use the funds from the new loan to pay off the $100,000 balance on their current mortgage and use the remaining funds for any needs they may have. This means they would receive about $150,000, depending on the actual value, to cover any costs they want.
There are various reasons why a cash-out refinance may help in this situation. For example, the property owner may elect to use the funds from the loan to remodel their home. This would not only give them the home they desire, but it would also give them a home that has a higher value, potentially. They can use the funds to consolidate other debts, such as paying down high-interest credit cards or other personal loans. Some may even elect to use the funds to take a dream vacation.
It is not required to use a cash-out refinance. The amount of equity available can also be very limited in some situations. However, this is one of the reasons some consumers elect to use a VA refinancing loan – to gain access to the built-up value in their home.
VA Streamlined Loans
A secondary option is a VA streamlined refinance, sometimes called an IRRRL loan or an Interest Rate Reduction Refinance Loan. This option is available to those who have a VA loan in place on their home right now. It allows the homeowner to refinance the loan at today’s interest rates. These may be significantly lower than the interest rates they are currently paying on their homes.
The term streamline is important to understand here, though. Streamlined loans are those that do not require as much paperwork. They tend to be faster to obtain because of this. This can speed up the process and help a property owner to get into a new loan faster.
These loans are also beneficial to just some borrowers. They tend not to be available for those who wish to take out cash from their home’s equity, which can make them somewhat limiting to some borrowers. Still, they often are a good option for others. They offer key features.
Most often, these loans do not require as much time to document the income and expenses of the property owner. They do not have a lot of out of pocket expenses (some do not have any out of pocket expenses). However, they can also be done without an appraisal in some situations.
They are best for those who wish to get a lower interest rate on their loan. A lower interest rate can mean lower monthly payments. It also means that, unless the term is extended, the borrower will pay less over the life of their loan than they would if they maintained the current term. Most borrowers benefit from lower interest rates, then. However, for those who are finding their monthly payment to be too high, but they still can make payments, refinancing with these loans can be a good option.
Learning About Interest Rates
In all situations of refinancing, a consumer must consider the value of refinancing. That is, is it worth paying any fees and going through the refinancing process? If interest rates are lower than one percent or more from what is currently being paid on the existing loan, it tends to be worth taking a closer look at current rates.
Consumers should learn what VA non-streamline rates are if they are seeking cash out or refinancing otherwise. They should also learn what rates are for streamline VA loans, as well. The VA non-streamline rates can be just as competitive as those that are streamlined. Consider both options before making a purchasing decision.
What Factors Impact Loan Rates?
Like with any other type of loan, a VA refinance non-streamline rate will depend on many factors. Most importantly is the borrower’s credit history. Having a good credit score can help to show lenders that the borrower is a safer investment, and that can mean getting a lower interest rate on their loan. Creditworthiness is a big factor when it comes to VA refinance non-streamline rate, but borrowers can secure a quote right away to learn what to expect.
Because this is a refinanced loan, there is no down payment requirement, much like the original VA loan. However, borrowers still have to prove they have the income to qualify for the lowest VA refinance non-streamline rate as well as the loan overall. Showing proof of income dating back several months is very common with these loans.
Who Should Apply for a Loan Refinance?
Consumers who have a VA loan right now may want to take a closer look at what they are paying. Consider the current mortgage payment made each month. Is that amount competitive, and is it affordable? If the loan payment is too high, it may be possible to refinance the loan for a longer-term and with a lower interest rate. In doing so, it may be possible to reduce the size of the monthly payment significantly. This can make making monthly payments easier.
Another time to consider the process of refinancing is when there is a significant difference in the current interest rate on the loan in hand and the one that the consumer can receive if he or she refinanced. Usually, a gap of at least one percent is beneficial. However, many consumers who have been in their homes for numerous years will find that there are big gaps in current rates compared to older rates on existing loans. By refinancing, it is possible to reduce a great deal of the cost associated with the loan.
Yet another reason to consider a VA refinancing loan is when there is a significant amount of equity in the home. Equity occurs when the value of the home rises over time, and the amount of the current mortgage debt falls. Overall, equity is a type of secured debt. Consumers who borrow this money can often do so for a small interest rate compared to non-secured debt like credit cards. And, because it is available through a refinanced loan, such as a cash-out mortgage loan, it can be readily accessible. As noted previously, equity can be used for many goals. That makes it an affordable way to remodel or consolidate debt.
Who Is Eligible for a VA Refinance Loan?
Several groups of people can be eligible to refinance their existing VA loan. The primary eligibility falls on having an existing VA loan. However, there are other qualifications. Most often, a property owner still must meet the requirements set when it comes to buying a home using a VA loan. For the most part, this means having served as an active duty member of the U.S. Armed Forces for over 90 consecutive days during any time that the VA considers wartime. Another option to qualify is to have served at least 181 days of service during a period considered peacetime by the VA.
Most individuals in the Armed Forces can qualify. This includes those who are members of the Army, Navy, Marine Corps, Air Force, and Coast Guard. Those who are a part of the National Guard or who are Reservists will need to have met those requirements, which generally means having served at least six years. Military spouses and other members may be eligible as well. Some surviving spouses may also qualify to refinance a VA loan, but there may be other considerations that must be met.
How to Get a VA Refinance Loan
When it comes to obtaining a non-streamline refinancing loan, consumers with a VA loan should request a quote. It is important to then compare interest rates on these loans to determine if the new loan is worth the investment. If so, it is then possible to work through the paperwork and eligibility requirements to refinance the loan. The type of loan will determine if it is necessary to obtain an appraisal.
In many cases, the process can be completed quickly. Once it is complete, the consumer can begin paying on the new loan usually at a lower cost than what they were paying prior for an existing loan. VA loan refinancing is available to most borrowers, starting with a simple quote.
Mike Timoschuk
Mike is an established expert in mortgage loan origination and refinances in California and nationally, with over 15 years of hands-on experience. He’s been helping consumers and businesses get the best deals on mortgage loans for his entire career, with a personalized touch and professional presence since beginning his career. In his (limited) spare time, Mike is devoted to his family, his Southern California locale, and outdoor activities like Iron Man competitions.