Who Is Eligible For An Irrrl
You have to meet the following qualifications for an IRRRL:
- You have a VA-backed mortgage. The IRRRL program is only for people served by the VA, and that includes veterans, service members, surviving spouses, the National Guard, Reserves, and anyone whod qualify for a Certificate of Eligibility .
- Youll use the IRRRL to refinance the VA-backed mortgage, and not any other home loan.
- You can offer proof that you currently live or have previously lived in the home with the VA-backed mortgage. If the property has only ever been for investment purposes, then you wont qualify for an IRRRL.
What Are The Costs Of A Va
With a cash-out refinance, you will have to pay the VA funding fee as security for this government-backed loan. As of November 24, 2020, the fee is 2.3% for first use , and then 3.6% after the first use. Unlike the IRRRL, which gives you the option of rolling the fee into your monthly payments, the fee associated with a cash-out refinance must be paid upfront or with cash you take out.
Most people will have to pay the VA funding fee, but there are exemptions, like if you have a service-connected disability, have received the Purple Heart, or are the surviving spouse of someone who died in service. The full list of exemptions can be found on the VA website. Youre also responsible for any closing costs associated with the refinance .
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What Are The Pros And Cons Of A Va Loan
There are a myriad of reasons why a veteran would want to choose a VA Loan. A VA loan is federally backed. It also offers lower interest rates and fees than are usually associated with home lending costs. The only cost required by VA loans is a funding fee of one-half of one percent of the total loan amount. And that may be paid in cash or rolled into the loan amount. However, there are some factors you will want to take into consideration when deciding if a VA Loan fits your home buying needs.
What Is The Difference Between A Va Appraisal And A Conventional Appraisal
Any appraisal will help a lender determine a propertys value. But VA appraisals go beyond conventional appraisals by incorporating a second function: ensuring that homes meet the VAs Minimum Property Requirements . VA appraisal guidelines can be strict and can eliminate fixer-uppers from contention.
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How Does The Va Loan Process Work
If you’ve never applied for a VA home loan, you may wonder how a loan is finalized and what you can do to get things started. Obtaining a VA loan is much like securing a conventional mortgage, but with a few extra steps. Weve outlined the steps below to help ensure you don’t miss any important requirements.
Are Va Loans More Expensive Than Conventional
Another plus for the VA: It likely will have a lower interest rate than a conventional loan. For 30-year fixed-rate loans closing in November 2020, VA loans had an average rate of 2.72%, compared with 2.99% on a conventional mortgage for the same term, according to mortgage data provider Ellie Mae.
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Funding Fee And Taking Cash
The VA requires a mandatory charge known as the VA Funding Fee on every loan it guarantees. This fee doesn’t go to the lender rather, it helps fund the VA home loan program and ensure that future generations of Veterans can obtain home financing.
Veterans who want to refinance into a VA loan pay a higher Funding Fee than those who can pursue a Streamline. At present, the VA Funding Fee for a Cash-Out refinance is 2.30 percent of the loan amount for regular military, National Guard and Reserve members using the VA loan for the first time. Borrowers with a service-connected disability are exempt from paying the Funding Fee.
Depending on interest rates and closing costs, Veterans in some cases might consider a home equity loan, although rates tend to be higher on these.
There’s also a quirk when it comes to the Cash-Out for conventional borrowers: They don’t actually have to take out any cash. It’s just that this is the only option to jump into the VA loan program.
Chris Birk is the author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.
An award-winning former journalist, Chris writes about mortgages and homebuying for a host of sites and publications. His analysis and articles have appeared at The New York Times, the Wall Street Journal, USA Today, ABC News, CBS News, Military.com and more.
More than 300,000 people follow VA Loans Insider, his interactive VA loan community on Facebook.
Va To Conventional Loan Refinancing: The Basics
If you have a VA loan on your current home, you can refinance it into a conventional loan— but it might only make sense in a few, very particular situations. Since conventional loans typically have higher interest rates and charge monthly private mortgage insurance premiums, you probably wouldnt want to refinance your VA loan just to save money on your mortgage payments.
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Find Out If Refinancing Is Right For You
Before you decide to refinance it is important to consider all the factors from the small details to the big picture. If you chose the wrong time it can cost you money, time and some sanity.
The Wendy Thompson Team is here to help you make the right choice for your family.
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What Is The Va Streamline Program
A VA IRRRL, also known as a VA Streamline, may help you refinance to a lower interest rate through the VA. Your new terms must provide you with an immediate financial benefit, such as a lower interest rate or a lower monthly payment. You must be eligible to receive VA loan benefits based on service time.
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How Does A Va Loan Work
On the surface, a VA loan works like any other home loan program. You fill out a loan application, provide proof you can repay the loan based on your earnings and credit history and verify you have enough money saved up to cover closing costs.
However, there are some big differences between VA loans and conventional or FHA loans, especially when it comes to how costs and fees are charged and paid.
You have to verify your military service history. The VA home loan benefit is only for military borrowers that have served enough time to meet eligibility requirements.
You dont pay any mortgage insurance. Most low- or no-down-payment loan programs require mortgage insurance, which covers lenders in case you default on your payments and they have to foreclose. The VA doesnt require mortgage insurance on any of its loan types.
Youll pay a VA funding fee. One of the downsides to a VA loan is having to pay the VA funding fee cost of 0.5% to 3.6%. The funding fee is charged to offset the cost of the VA loan program to taxpayers and is typically rolled on top of the loan amount, even if you make no down payment.
Your lender cant charge you more than 1% in closing costs. VA lenders are limited to charging 1% of your loan to cover their fee. That saves you money at closing and makes VA closing costs more affordable than other government-backed loan programs.
How Does A Va Loan Differ From A Conventional Mortgage
Aside from the qualification requirements, the biggest difference between a VA loan and a conventional one is the down payment amount. While most conventional loans require a minimum down payment, VA loans may not require any down payment. Here are some other differences between the two loan types:
- VA loans tend to have lower interest rates than conventional loans
- You can avoid paying private mortgage insurance with a VA loan.
- VA loans typically take longer to process because additional approvals and documentation are required
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Can A Surviving Spouse Do A Va Cash Out
Surviving spouses of veterans and military personnel can be eligible for a VA loan. To be eligible, at least one of these conditions should be true: The veteran died while in service or from a service-connected disability and the spouse didnt remarry before they were 57 years old or before December 16, 2003.
How To Use A Va Loan For Rental Property
Theres one big problem when it comes to using a VA loan to buy a rental or investment property: you cant technically do it since VA loans are only available for primary residences. Despite this, homeowners can refinance the VA loan on their current home into a conventional loan, freeing up their VA credit, rent that home out for income, and then buy a new home with a VA loan that they will use as their primary residence. This requires you to give up living in your current home, which may or may not be acceptable , but might be a smart financial solution for many. Also, remember that PMI premiums , will make the mortgage on your first home more expensive, and that could easily eat into your profits.
Remember, VA loans are available for homes with up to 4 living units, so, if youre really serious about getting more rental income, so it might make sense to choose an affordable duplex or triplex as a new primary residence. Or, if you want to skip the entire refinancing process, it might simply be smarter to sell your old home to free up your VA credit, and to purchase a multiplex with your new VA loan.
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Reasons To Refinance From Va Loan To Conventional
If conventional mortgages require A) down payments, B) higher credit scores, and C) PMI, why would a veteran want to refinance from a VA loan to conventional one? Several reasons exist:
- Rental property conversion: If your primary home is financed with a VA loan, you generally cannot use another VA loan to buy a second property . However, many veterans decide to move from one home, turn it into a rental property, and use the VA loan to purchase a new, primary residence. If you refinance the first propertys VA loan into a conventional one, you have the ability to use your VA loan eligibility to purchase your new home. Endstate: your old home becomes a conventionally-financed rental property, and you purchase your new home with the VA loan.
- Better terms: VA loans typically offer extremely competitive interest rates. But, if you have a credit score high enough to qualify for a conventional loan, you may be able to refinance into better terms than a VA loan could provide.
- Do not qualify for IRRRL: The VAs Interest Rate Reduction Refinance Loan provides veterans with VA loans a streamlined way to refinance into a lower interest rate. But, some veterans with multiple mortgages may not qualify for this program. For these individuals, refinancing into a conventional loan may be the only option to take advantage of lower interest rates.
What Is The New Va Funding Fee For 2020
As of January 1, 2020, the VA funding fee rate is2.30% for first-time VA loan borrowers with no down payment. The funding fee increases to 3.60% for those borrowing a second VA loan. The funding fee rate is only applied to the amount financed in the VA loan, so no fee is applied to a borrowers down payment.
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Pros And Cons Of Conventional Loans
When it comes to conventional loans, they typically close faster than VA loans.
Conventional loans also can receive appraisal waivers, reducing your closing costs and increasing certainty of closure for a real estate purchase, says Davis. And there is no funding fee for a conventional loan.
As mentioned before, primary, second, or investment properties can all be purchased with a conventional loan. And home sellers often look more favorably on a conventional loan than a VA loan.
Conventional mortgages, however, require you to purchase private mortgage insurance if you are paying less than 20% down. And unlike VA loans, they usually require a down payment of 3% or more, notes Nik Shah, CEO of Home.LLC.
Furthermore, unlike VA loans, conventional loans have maximum loan limits. These are set by each county in most counties, the max loan amount you can borrow is $ for a singlefamily home.
Advantages Of Va Loans
- There is no down payment necessary unless required by the lender.
- There is no need to pay mortgage insurance.
- There is a one-time VA funding fee that can be part of the loan.
- The property is inspected to ensure it meets the minimum property requirements.
- The VA can provide assistance if the borrower is unable to make payments and the loan becomes delinquent.
- The VA loan limit in Texas is $548,250, but anyone who has previously used a loan program may have full entitlement.
- The remaining entitlement applies if you have an active VA loan or still reside in the home youve paid off.
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What Are The Benefits Of Refinancing With A Va Loan
The benefits of refinancing your mortgage with a VA loan are plentiful, which is why VA home loans are so popular among those who can qualify. For starters, VA loans dont require a down payment, whereas another government-backed loan, the FHA home loan, requires at least 3.5 percent down.
VA home loans are also offered without private mortgage insurance, or PMI, which typically tacks on another .05 to 1 percent on your mortgage amount annually until you have at least 20 percent equity. Instead, VA loans typically come with a funding fee that is paid once upfront and can be wrapped into the closing costs when you refinance with a VA loan. However, you can avoid paying the funding fee altogether if you suffer from a service-related disability and meet specific requirements, or if you are the surviving spouse of a veteran who died in service or from a disability resulting from military service.
VA home loan rates are also incredibly competitive, and the interest rate can be lower than what you might qualify for with a conventional loan. And thats in addition to relaxed credit and income requirements that make qualifying easier, as well as a limit on closing costs that can help you keep the upfront expenses involved in buying or refinancing with a VA home loan at a minimum.
Another benefit: VA loans also come with no prepayment penalties as well, so you can pay off your home early if you want without having to worry about added fees or gotchas.
When Not To Refinance A Va Loan
Now that weve discussed why, when, and how to refinance a VA loan into a conventional loan, lets briefly discuss when its not a good idea.
Obviously, its not a good idea if after the borrower compares his current VA loan to the available conventional loans, he finds that his VA loan remains the economical choice. This may be due to a number of reasons:
- His current equity may be below 20 percent and the resulting PMI costs might tip the scale away from the conventional options.
- His credit score may be too low. Credit score influences the terms of any loan. Plus, they change over time. If the borrowers credit score dropped after he obtained his first loan, refinancing to a new loan might be a bad idea.
- Changes in the economy. Interest rates change over time, sometimes for the worse.
- VA occupancy rules might interfere. These rules require you to move into your new home within 60 days of the closing date on the loan.
- The new home is in poor condition. VA rules have stricter requirements regarding homes which might prevent a borrower from purchasing a fixer-upper.
Those are some of the more common reasons for not refinancing a VA loan into a conventional one.
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