The perks of a Veterans Affairs (VA) mortgage are plentiful, and that includes the ability to refinance it with another VA loan.
With the specific guidelines that come with a VA home loan, it’s no surprise that a VA refinance also has unique requirements for eligible borrowers. While these requirements can be stricter than other types of loans, VA refinances also come with some advantages that you can’t get with a traditional mortgage.
However, there may be a waiting period requirement between getting a VA home loan and refinancing it. Learn more about this process, the types of VA refinances and the advantages of getting one.
Refinance Eligibility for VA Loans
Before applying for a VA refinance, you likely want to ensure a couple standard requirements.
Loan Seasoning
This term refers to the age of your current VA loan. Typically, a cash-out refinance doesn’t require a specific seasoning period. However, an interest rate reduction refinance loan or IRRRL does. An IRRRL is considered seasoned 210 days after you make the first payment on the loan, and you have made six consecutive monthly payments on the loan.
Certificate of Eligibility
A Certificate of Eligibility (COE) shows that you meet the military service requirements for your VA loan. You can find the required documents to request a COE on the VA website.
VA Funding Fee
Every VA home loan requires a VA funding fee unless you meet certain descriptions or requirements. This is a fee paid by eligible borrowers that helps decrease the cost of the loan for American taxpayers since a down payment or monthly mortgage insurance isn’t required for a VA loan.
The actual amount you need to pay for the VA funding fee varies on a number of factors: your loan type, the total amount of your loan and your down payment. To appropriately prepare for this fee, ask your lender for a breakdown of the costs of your loan.
Types of VA Refinances
Depending on your purpose for refinancing, you may be able to choose between two main types of VA refinance loans.
Interest Rate Reduction Refinance Loan (IRRRL)
Opportunities to save on your monthly mortgage payment don’t come up very often so if you’re able to, you may want to consider an IRRRL, also known as a VA streamline refinance. This type of loan can help you secure a lower interest rate and potentially lower your monthly payments or convert your adjustable-rate mortgage (ARM) into a fixed-rate mortgage for more stable payments.
Keep in mind that to be able to qualify for a VA IRRRL, you must already have a VA loan, you’re using the IRRRL to refinance that VA loan and you can prove that you live in or used to live in the home with the original VA loan.
Cash-Out Refinance Loan
Ready to finally start your home remodeling projects? Perhaps you have some high-interest debt you need to pay down? No matter your reason for needing some money, a cash-out refinance loan could be your solution.
This type of refinance lets you replace your current VA loan with a new one and lets you take cash out of your home equity or turn your non-VA loan into a VA loan.
To qualify for this type of refinance, each of the following must be true: you can get a COE, you meet all the VA’s and your lender’s standard requirements (such as for income and credit), and you will live in the home that the loan will be refinancing.
VA Refinance Loan Advantages
Getting a VA refinance loan could come with a handful of advantages that you may not be able to experience with a traditional refinance loan. Find out if these advantages could help you with your refinancing decision.
No Mortgage Insurance Requirement
Perhaps one of the biggest advantages that sets VA loans apart from other types of loans is the absence of a mortgage insurance requirement. This could help you save significantly on your monthly mortgage payment and help you afford a higher-cost home than if you were to obtain a traditional home loan.
No Down Payment Requirement
Depending on your loan type, saving for a down payment can take months or years. Even an FHA loan requires, at minimum, 3.5 percent down. However, with a VA loan, no down payment is required so you may be able to obtain one faster than other types of refinance loans.
Roll Funding Fee into Loan Amount
While a VA funding fee is required for VA loans, you may be able to roll this cost into your loan amount to pay it over time. Additionally, if you meet certain requirements, you may not have to pay this fee at all.
Check Your VA Refinancing Ability
Depending on your reason, you may be able to refinance pretty quickly. Even if you opt for an IRRRL and must wait for the required seasoning of the loan, you could still take advantage of a VA loan in less than a year. Don’t forget that you have resources available to you. If you have further questions or need more details on your specific situation, make sure to speak with a reputable lender and/or consult the VA website at va.gov.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
