What Credit Score Is Needed To Refinance
Borrowers with credit scores of 620 or greater may be eligible to refinance their home, but credit scores of 740 or higher receive the most favorable refinance interest rates. The higher your credit score the lower your refinance interest rate, so it’s beneficial to have a healthy credit score.Calculate your estimated savings at varying interest rates to see if it’s worthwhile to wait and improve your credit score before refinancing.
Whatis A Va Funding Fee And How Much Is It For A Streamline
The VA funding fee is collected by lenders at closing and is financed into the loan which helps offset the cost to fund the VA streamline program. Its a requirement on all VA loans except when the veteran has had a service-related disability in which case they can be exempt from paying this fee. The funding fee is .5% for a veteran and for National Guard or Reservist.
Find out more about a VA into a Refinance Loan.
How To Refinance Into A Va Loan
There are two main options available to you when you choose to refinance with a VA loan, and youll want to conduct some basic research to determine which is right for you. After all, VA loan refinance options can help you achieve different goals, including lowering your monthly payment, getting cash out or simply switching from a conventional loan to a VA loan.
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The Va Lenders Handbook On Occupancy
Details on occupancy guidelines may be found in VA Pamphlet 26-7, the VA Lenders Handbook. It holds a complete list of requirements and more general policies for VA mortgages and occupancy rules.
Federal law requires a VA loan applicant to certify that he or she intends to personally occupy the property as his or her home. VA Pamphlet 26-7, Chapter Five states that the date of the certification must be the day the veteran is required to personally live in the property as his or her home OR intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his or her home within a reasonable time.
In the case of VA Streamline Refinance Loans, also known as VA Interest Rate Reduction Refinance Loans , the loan requires the borrower to legally certify they have lived on the property they are now renting out. Here is an example from VA Pamphlet 26-7:
A veteran living in a home purchased with a VA loan is transferred to a duty station overseas. The veteran rents out the home. He/she may refinance the VA loan with an IRRRL based on the previous occupancy of the home.
Note the statement the veteran rents out the home above. In the timeline of the transaction, as described by the VA, the IMPLICATION of the above line is that the veteran did NOT wait to refinance.
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Va Streamline Refinance Loans
Military borrowers who want to refinance a home, move out, and rent it out to others have their best option using a VA Streamline Refinance loan, which does not require you to occupy the home as your primary residence, but simply requires you to legally state you HAVE USED the home as your primary residence in the time leading up to the refinance loan. Under the stated terms of your VA home loan for Streamline refinances, you would be free to refinance, move out, and rent to new tenants.
Yes, you read that correctlythe VA does not require you to maintain occupancy in a property refinanced with a VA Streamline loan, which is designed to give the borrower a specific, tangible benefit when refinancing such as a lower interest rate, a lower monthly payment, moving out of an adjustable interest rate loan, etc.
There is a caveat, though.
VA Streamline Refinance loans are ONLY for those with existing VA mortgages. You cannot refinance a non-VA home loan using a VA Streamline refi loan. VA Streamlines feature no VA-required credit check and no VA-required appraisal, which makes them unique among VA refi loans.
What Is A Va Interest Rate Reduction Refinance Loan
A Veterans Administration interest rate reduction refinance loan is a home loan that replaces your existing VA mortgage with a new loan that has more favorable terms. You also will see this type of mortgage referred to as a VA streamline refinance.
There are several ways the new loan could be more favorable:
- It could give you a lower monthly payment by lowering your interest rate.
- It could give you a more stable monthly payment by getting you out of an adjustable-rate mortgage and into a fixed-rate mortgage.
- It could have a lower interest rate and a shorter term, allowing you to get out of debt sooner and save money on interest over the long run.
If the new loan has a longer term, however, the new term cant be longer than 30 years plus 32 days, or 10 years longer than the term of your original loan, whichever is shorter. In other words, if the loan you are refinancing is a 15-year loan, you cannot refinance into a 30-year loanbut you can refinance into a 25-year loan.
Does the VA allow homeowners to refinance into an ARM with an IRRRL? Yes. But the new mortgage must have a lower interest rate than your current mortgage does.
You can even use an IRRRL to get out of a loan youve fallen behind on. The VA does not require you to be current on your loan to be eligible for a streamline refinance. Some lenders do, however, so if youre in this situation, you may have to shop around more to get approved.
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About The Va Loan Guaranty Program
The VA Loan Guaranty program was first introduced in 1944 as part of the nations G.I. Bill. Backed by the U.S. Department of Veterans Affairs, the program was originally launched to support the homeownership needs of servicepersons returning from war.
Today, the VA loan program supports a host of military borrower-types not just combat veterans.
For example, National Guard members and reservists are eligible to use VA loans, as are cadets at the Coast Guard Academy, for example. You can review a complete list of VA loan-eligible borrowers here.
Via its Loan Guaranty program, the Department of Veterans Affairs promises to stand behind a loan, guaranteeing that a mortgage lender will receive repayment of at least a portion of the loan amount should the borrower fall behind or face foreclosure.
The VA guarantees roughly one-quarter of the banks potential loss.
This guarantee limits a lenders lending risk which, in turn, allows the bank to offer better mortgage rates than would otherwise be available. And, because VA loans are available for refinance loans as well as purchase ones, homeowners with any mortgage need can use the VA loan to their advantage.
VA mortgage rates are often much lower than comparable 30-year fixed conventional mortgage rates.
Benefits Of A Va Irrrl Refinance
No. 1: No cash at closing
You are not required to bring in cash to close your VA refinance. Instead, you can finance the closing costs into your loan amount. Your maximum loan amount is calculated by taking the existing VA loan balance, plus the following:
- Allowable fees and charges, including a maximum of 2 discount points
- The cost of allowable energy-efficient improvements . Improvements must have been completed within 90 days preceding the funding of the loan for you to be reimbursed for them.
- The funding fee
No. 2: Easy credit requirements
As long as you are current on your VA mortgage, you are not required to have good credit to get your IRRRL approved. There is no credit underwriting performed unless your payment will increase by 20 percent or more or you are more than 30 days behind on your current home loan.
However, if your credit has been affected by an active Chapter 13 bankruptcy, your new refinance may have to be approved by the bankruptcy trustee or judge.
No. 3: No appraisal or current employment required
In most cases, no appraisal on the property and home is required. The no-appraisal requirement is a boon to those whose homes have little equity or may have even lost value and who would otherwise not qualify for a traditional mortgage refinance. You don’t need to document your income. In fact, you don’t even need a job or a new certificate of eligibility either.
Here’s more information:
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Am I Eligible For An Irrrl
You may be eligible for an IRRRL if you meet all of the requirements listed below.
All of these must be true. You:
- Already have a VA-backed home loan, and
- Are using the IRRRL to refinance your existing VA-backed home loan, and
- Can certify that you currently live in or used to live in the home covered by the loan
Note: If you have a second mortgage on the home, the holder must agree to make your new VA-backed loan the first mortgage.
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.
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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.
Va Streamline Refinance Eligibility Guidelines
If youre interested in a VA Streamline Refinance you must currently have a VA home loan. Most veterans, including National Guard and Reservists, can qualify.
There are some additional eligibility requirements related to your type and length of military service.
In addition to those minimum service requirements, youll need to meet the following criteria to be eligible for a VA Streamline Refinance loan:
- Payment history: Youll need a six-month history of on-time payments
- Waiting period: The IRRRL program requires a 210-day waiting period since you closed your existing loan
- Most VA lenders will not check your credit score
- Net tangible benefit: Your new loan has to do something your old loan couldnt do for example, reducing your interest rate and monthly mortgage payment or switching from an adjustable-rate mortgage to a fixed-rate mortgage
Some of these requirements arent as simple as they seem on the surface, so lets take a closer look at each one.
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When A Va To Conventional Loan Refinance Makes Financial Sense
The most popular reason for a VA to conventional loan refinance is that borrowers want to use their VA credit to buy a rental home that can increase their monthly income. If youre a VA eligible borrower, you only typically have one credit you can use to get a VA home loan. While you can use this credit over and over again, you cant use it more than once at the same time. By freeing up their VA credit, homeowners may be able to purchase another home, gaining more financial freedom– but theres a big catch.
Va Home Loan Rules On Occupancy
Because the VA Lenders Handbook requires the property purchased with a VA mortgage to be a primary residence, the borrower generally has 60 days to take ownership and occupy the home after loan closing. The borrower has, at this stage, signed a legally binding agreement stating at least one borrower obligated on the mortgage will do so and use the home as the primary residence.
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Contact A Home Loan Expert
Its helpful to talk to an expert if you decide that a VA Streamline is right for you. Rocket Mortgage has Home Loan Experts who are ready to talk you through a VA Streamline with your specific financial profile.
Have you found that you dont qualify for a VA Streamline refinance and want to know your options? A Rocket Mortgage Home Loan Expert can help with that, too.
Why Might I Want To Get A Va
A VA-backed cash-out refinance loan may help you to:
- Take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs, or
- Refinance a non-VA loan into a VA-backed loan
On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areasand more in some high-cost counties. You can borrow more than this amount if you want to make a down payment. Learn more about VA home loan limits
Youll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Make sure you understand how your new loan amount relates to the value of your home. While your lender can advise you on the costs and benefits of the transaction, youll want to be sure you understand what youre getting into.
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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.
To Be Eligible For An Irrrl:
- You must have an existing VA loan that youre refinancing to another VA loan, reusing your entitlement.
- You need the Certificate of Eligibility from the original VA loan.
- If there is a second mortgage on your home, that lien holder must agree to subordinate so your new VA loan will be a first mortgage.
- You must certify that you occupied the home at one time.
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Va Loan Eligibility Standards
The VA loan has broad eligibility standards. Most active-duty servicepersons, veterans, National Guard members, Reservists and surviving spouses of deceased veterans are eligible to refinance with a VA loan. Discharged and retired servicepersons remain eligible, too.
Others, such as cadets at the U.S. Military, Air Force or Coast Guard Academy, midshipmen at the U.S. Naval Academy and officers of the National Oceanic & Atmospheric Administration, are also among those who are VA-eligible.
Normally, a minimum length of service is required.
Home Improvements That Can Be Added To Your Va Loan
The VA home loan program offers eligible borrowers a multitude of advantages. No money down, no private mortgage insurance required, accessible refinancing options, no established minimum credit scores, and service-related disability options, anchor the loans appeal. These benefits are the driving force behind the loans expanded popularity in recent years.
Many borrowers however do not realize the full scope of what the VA loan can be used for. Did you know that you can get government funds for energy efficient home improvement? Special government home improvement mortgages, tax credits and rebates are available.
A VA Energy Efficient Mortgage is used to support a multitude of improvements rooted in energy efficiency. Examples of improvements that can be conducted using this type of VA mortgage include solar powered cooling and heating systems, caulking and insulation, remodeled doors and storm windows as well as specific thermostats.
Are you interested in the United States government funding your home improvement? The 48 tips listed below will save you money, remember, Uncle Sam picks up the tab!
ENERGY Star appliances are certified by the government to reduce energy consumption when compared to non-ENERGY Star products. Replacing older appliances will reduce your electric bill by hundreds of dollars per year.
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