Gather The Required Documentation
Once you’ve decided on a lender and a loan type, the next step will be to formally apply for the refinancing loan. After submitting your application , your lender will request documentation on your income, employment, assets, and other relevant information.
If you’re refinancing with a new VA loan, you’ll need to show your Certificate of Eligibility.
Va Cashout Loans To Consolidate Mortgages And Other Debt
Borrowers can take cash out of their homes at the same time they combine first and second mortgages into a single lowcost VA loan. Thats true even if the current mortgages arent VA loans.
For example, lets say a veteran purchased a home with an FHA loan, then later got a second mortgage from a local bank.
The VAeligible homeowner can now pay off both loans, eliminate mortgage insurance, and consolidate the two loans into one.
If there is cash left over, the homeowner can cover medical bills, handle a family emergency, start a business, pay off highinterest shortterm loans and credit cards, or use the cash for almost any other purpose.
How A Va Loan Works
VA loans help active service members, veterans, and their surviving spouses become homeowners. They provide up to 100% financing on the value of a home. Eligible borrowers can use a VA loan to purchase or build a home, improve and repair a home, or refinance a mortgage.
The VA sets the qualifying standards, dictates the terms of the mortgages offered, and backs the loan, but doesnt actually offer the financing. Instead, VA home loans are provided by private lenders, such as banks and mortgage companies.
When borrowers apply for a loan, they need to provide the lender with a certificate of eligibility from the VA. To get the certificate, youll have to produce service-related documentation, which can vary based on whether you are active duty or a veteran. The certificate can be obtained from the VA website. Although some of the lenders own underwriting requirements still must be met, in most cases, VA loans are easier to qualify for than conventional loans.
VA loans, Federal Housing Administration loans, and other loans insured by departments of the United States government have securitization through the Government National Mortgage Association , also known as Ginnie Mae. These securities carry the guarantee of the U.S. government against default.
Borrowers can apply for a VA loan more than once, but the funding fee increases when using a VA loan after your first time if the down payment is less than 5%. Fees range from 1.4% to 3.6% of the loan amount.
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Can You Refinance From A Va To Fha
Refinancing your VA loan into an FHA loan is a great way to reclaim all of your VA loan benefits. VA will only guarantee a limited amount for each veteran at one time. When you refinance your VA loan, all of your eligibility is available for a future home purchase. While your VA loan may not have required a down payment, the FHA loan will not allow you to finance 100 percent of the homes value into the new FHA loan.
Find an FHA-approved lender. FHA requires all lenders who want to offer FHA loans to obtain approval. One resource is the U.S. Department of Housing and Urban Development website. HUD will provide you a list of FHA-approved lenders in your area. FHA has approved most banks, and many mortgage brokers are also approved. Be sure to ask all of the lenders if they are FHA approved.
Obtain quotes from several lenders. The quotes should be provided on a Good Faith Estimate , as required by law. The quotes will outline the new loan amount, interest rate, closing costs and required minimum monthly payment. Compare these quotes with one another using the section labeled using the shopping chart located on page three of the GFE. This section allows comparisons of up to four loans.
Who Qualifies For A Va Irrrl
Only veterans, active-duty servicemembers, and qualifying surviving military spouses can get VA loans. This loan program exists to help military families get into safe, affordable housing.
But just because you qualify for a VA loan doesnt mean youll automatically qualify for the VA streamline refinance.
To qualify for the IRRRL program, youll also need to:
- Have an active VA mortgage already: If you used a conventional, FHA, or USDA loan to buy your house, you cant use a VA IRRRL to refinance your home, even if you qualify for VA benefits.
- Be able to lower your interest rate: The purpose of the IRRRL program is to reduce your interest rate. If rates are higher than when you received your current loan, a VA streamline refinance may not work. You probably cant get approved unless youre switching from an ARM to a fixed-rate loan.
- Complete the waiting period: If you just closed on your current VA loan, you cant refinance yet. Youll need to wait 210 days after the closing day on your existing loan. Some VA lenders require longer waiting periods, so check with a few lenders on what their policies are.
- Have a good payment history: Youll need a six-month history of on-time mortgage payments on your existing loan.
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Va Cashout Refinance Rates Vs Standard Va Rates
One thing to keep in mind is that cashout interest rates tend to be a little higher than nocashout mortgage rates.
That means cashout refinance rates might be around 0.125% to 0.25% higher than VA loan rates you see advertised online.
However, this rule is not set in stone. Your own refinance rate depends on factors like your credit score and home equity so if your personal finances are in a good place, you might get a great cashout refinance deal.
And remember, you dont have to refinance with your current mortgage lender. Use this to your advantage.
You can shop around with multiple VAapproved lenders to see which one can offer the lowest cashout refinance rates for you.
Types Of Va Refinance Loans
If eligible, you can take advantage of two types of VA refinancing: cash-out and no cash-out.
A no cash-out refinance, also called a rate-term refinance, only modifies your interest rate and/or mortgage term. You can change the terms of your mortgage without changing the remaining loan balance. A cash-out refinance, on the other hand, allows you to refinance and borrow up to a percentage of your home equity. You can use the funds for home improvements, debt consolidation, and more.
If you don’t want to receive cash back, you might be a candidate for a VA streamline refinance. It’s an inexpensive option if you have a current VA loan. You can get a lower rate without a home appraisal or income verification.
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The Va Cashout Refinance Process
The VA cashout refinance process will be similar to the mortgage process you went through when you bought your home.
Homeowners who want a VA cashout loan will:
Keep in mind, a VA cashout refi requires full underwriting.
That means it will require more time and paperwork than the VA Interest Rate Reduction Refinance Loan , which has reduced paperwork.
If you use the VA cashout refinance, be prepared to show:
- Income documents
- Bank statements
- A credit report and credit score
- A new home appraisal
You might also be asked for an itemized list of debts to be paid off with loan proceeds, if you plan to use your cashout funds for debt consolidation.
Close On Your New Loan
Once underwriting has been completed to the lenders satisfaction, your loan will be approved and you can move forward to the closing stage. This is when your new loan is finalized, all paperwork is signed, and the refinance process is complete.
Your lender will give you a Closing Disclosure document a few days before closing, providing you with all of your loans final figures, continues Solomon. Fortunately, a refinance closing takes less time than a home purchase closing. The only people who have to attend are anyone listed on the loan or title and a representative from the lender or title company.
On your closing date, at the closing location specified by your lender, youll review your loan specifics and sign your loan documentation. At this time, any closing costs that arent bundled into your loan will have to be paid. If you are taking cash out, this is when you will receive the funds.
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Refinance To Get Cash Back
Maybe you want to pay off some credit cards, or do some home improvements. Refinancing to get cash back with a VA loan has these advantages:
- Any kind of mortgage can be refinanced to a VA loan.
- You need less equity in your home compared to other loans.
- You can refinance more of your homes value, which means more cash back.
- You can get cash without opening a home equity line of credit or adding a second mortgage through a home equity loan.
Whats home equity?
Home equity is the difference between your homes fair market value and the amount you still owe on your mortgage. The equity in your home increases as you make mortgage payments to your lender, and when the value of your home increases in the marketplace.
I Fell Behind On My Payments Can I Still Get A Va Streamline Refinance
Having a perfect payment history for at least six months helps get you refinance quickly and easily. But its possible to get a VA streamline refinance even if youve fallen behind on your current loan.
Your lender will have to go through some extra steps to get you approved. Ask your lender to look into getting prior approval for your refinance, and be prepared to answer questions about why you fell behind on your current loans payments.
You may even be able to get some or all of your existing loans late fees rolled into the new loans balance. Doing this could increase your new loans monthly payment, though.
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Full Va Loan Application
Once your VA Home Loan Specialist has determined you are pre-qualified for a VA Loan Refinance, they will prepare for you the formal VA Mortgage Loan application on the standard Universal Residential Loan Application all lenders use. Theyll also prepare all the required disclosures for you to sign and provide you with a list of personal documents that will be required for the VA Loan.
Requirements Of A Va Loan Refinance
If youre a veteran with VA loan eligibility, you may qualify for a VA loan refinance. The VA loan refinance programs have many benefits, including competitive interest rates and fees. Whether youre a veteran, an active-duty member, or a surviving spouse of a veteran, you may be eligible. Eligibility and qualifying are two different things, though. Heres what you must know about qualifying.
The VA offers two options to refinance the VA IRRRL program and the VA cash-out refinance. The VA IRRRL program is for borrowers with a current VA loan who want to lower their rate, change their loans term, or refinance from an ARM to a fixed-rate loan but not receive cash out from their equity.
The VA cash-out refinance is for veterans who have or want a VA loan. With this loan, they can tap into their homes equity, using the money for home improvements, debt consolidation, or other purposes.
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Va Loan Refinancing Options
There are three main options for VA loan refinancing. The type best for your situation depends on many factors, like your current loan type, mortgage balance, home equity and the desired result. The different outcomes might be a different loan term length, lower payment, lower interest rate or cash-out equity.
Refinancing With A Va Renovation Loan
A VA renovation loan is usually used to buy a fixer-upper home and finance renovations at the same time. But you can also use one to refinance an existing loan and make repairs or improvements to your current home. So, if your place is run-down and has issues, this could be for you.
Theres a big drawback, though. Very few lenders offer VA renovation loans. So you may have to invest some time in tracking one down.
Once youve found one, your lender will send an appraiser to determine the value of the home as-completed. In other words, what it will be worth once the work is finished.
But the appraiser cant do that until theyve seen detailed and itemized quotes from contractors. Only then can they visualize what the home will be after your renovations are finished and decide how much the property will be worth. So get those contractor quotes in early in the process.
After you close on your VA loan refinance, youll have 120 days to get the work finished. And youd need a good reason to get an extension.
To refinance with a VA rehab loan, you must have lived in the home for 12 months before you begin repairs. Note that the cost of repairs is capped at $50,000. And there are restrictions on the types of improvements you can make using that money.
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How Often Can I Refinance My Va Loan
There is no limit to how many times you can refinance your VA loan, either with the IRRRL or a cash-out option. However, there is a minimum waiting period you need to observe before you can refinance.
You must wait at least 210 days from the date of the first payment you made on the loan you want to refinance, and you must have made at least six consecutive monthly payments.
Understanding Va Loan Refinancing Options
The VA loan program helps veterans buy and refinance homes with more favorable loan terms than those found in the open mortgage marketplace. If you are a veteran with a mortgage on a home that’s your primary residence or that you previously occupied, and you want to refinance, a VA refinance may be the best option.
Why go with a VA refinance? A VA refinance offers significant advantages. Because the VA’s insurance guaranty essentially sets up a financial safety net for the VA lender, a lender can pass more advantageous loan terms along to you, the veteran. If you’ve financed a home purchase with a VA loan before, you probably already know about some of these advantages. You receive the same benefits in a VA refinance, including limits on closing costs, no prepayment penalty and no private mortgage insurance requirement even if your down payment is less than 20 percent.
Your three options for refinancing a VA loan are:
VA Streamline IRRRL
Rarely the best option because of comparatively higher costs and more strict underwriting requirements
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Basic Allowance For Housing
The Basic Allowance for Housing, or BAH, is a military entitlement given to active duty personnel to provide housing for themselves and their families. The BAH is calculated according to location and pay grade, and the allowance is designed to provide service members housing compensation equitable to local civilian housing markets. The BAH can be used toward rent or a mortgage, allowing you to build equity in your home, even if you dont have a down payment to get started.
Take a look at some quick facts and figures regarding VA home loans.
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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Va Streamline Refinance Cons
- Only applicable to your current home: You may change mortgage lenders or your mortgage specifics, not your actual property. This means you cant switch this loan into a new property it must be refinanced into the property you already own.
- Eligibility: To qualify for a VA Streamline, you must have a VA loan to begin with.
- Closing costs: With closing costs also comes VA IRRRL funding fees. A borrower can choose to roll over these costs into their new loan balance, which means theyll still be paying for them with interest on top.
- Mortgage length: VA loan refinances are flexible, and theres no rule that says you must extend your mortgage. Depending on the situation, you might have a longer mortgage length and it might take a longer time to pay off. This could be a negative for some borrowers.
Its important to note that you must wait 270 days from the closing of your original mortgage to apply for the VA Streamline. You must also have made six consecutive monthly payments on your loan, and there must be 210 days between your first mortgage payment and the closing on the VA Streamline.