The VA loan is one of the popular, offering low rates and an easy method to decrease monthly payments for qualified military homeowners. Also, the VA loan appeals to eligible veterans and military home buyers because of its unique perks. For example, it allows them to purchase a house with no down payment or refinance up to 120% of the value of their property.
However, many service members are unsure about the regulations and criteria for receiving a VA loan, which may lead to misunderstandings. But, mortgage lenders that partner with the Veterans Administration are usually more than happy to help veterans and active-duty service members take advantage of this incredible benefit.
Here, we’ll discuss everything you need to know about the VA loan program and how to refinance your VA loan.
Is It Possible to Refinance Your Home With A VA Loan?
Yes! You have various alternatives for refinancing your house with a Missouri VA loan. The most common reasons to refinance are to get cash out, shorten the loan term, or secure a lower interest rate.
What Is The Average Time To Refinance A VA Loan?
If you want to refinance your home with a VA loan, you’ll have to fulfill the required waiting period of 212 days or six payments, whichever is longer. You’ll have to wait regardless of which VA refinancing option you pick.
Benefits Of Refinancing A VA Loan
Refinancing a VA loan may make good sense for well-qualified borrowers with a solid credit history who plan to stay in their house for an extended period. But why refinance your VA loan specifically? Here are a couple of reasons:
- Lower-than-average interest rates compared to other loan types: This is based on the fact that these loans are available to serving members of the military, veterans, and their spouses.
- Potential to reduce the monthly mortgage payments: A lower interest rate could lead to a decrease in monthly mortgage payments.
- No monthly mortgage insurance premium: You’re not required to pay mortgage insurance with a VA loan, regardless of the loan-to-value ratio.
- The ability to cash out up to 100% of the home’s equity is an excellent way to pay for home improvements or consolidate debt.
- Ability to refinance up to 120% of the home’s value: One of the few loan products that can provide this benefit is a VA loan.
- Credit requirements are flexible: As a government-backed program, the VA is more willing to work with individuals who may have credit challenges.
- There are no prepayment penalties: You can sell or refinance your property anytime without being charged a penalty.
- Foreclosure assistance: The Department of Veterans Affairs (VA) may assist veterans in finding alternatives to foreclosure when they default.
- The ability to include the funding fee into the refinancing amount: Remember, disabled veterans or qualifying surviving spouses of active-duty Purple Heart recipients do not have to pay a funding fee.
Read here to know the down payment requirements for VA loans in 2022.
VA Loan Refinance Options
You’ll have three distinct alternatives when refinancing a VA loan. You can lower your interest rate through an interest rate reduction refinancing loan (IRRRL) or take cash-out financing. We’ll go over when it’s more advantageous to refinance into a conventional loan.
Let’s look at these three types of mortgage refinancing in-depth to see which one may be best for you and your financial needs:
VA Streamline Refinance (IRRRL)
The VA Streamline Refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), this type of refinancing is available to veterans who currently have a VA loan and want to lower their interest rate. Getting approved for an IRRRL is much simpler than a typical mortgage refinance because you’re not required to provide as much documentation to prove your creditworthiness, employment history, or income. This refinancing allows for little-to-no out-of-pocket expenses as well.
Other advantages of an IRRRL include:
- You can refinance up to 120% of the value of your house.
- A lower funding fee is paid.
- It may not be necessary to conduct an appraisal.
- You may be able to get your interest rate lowered.
- If you’re switching from an adjustable or variable loan to a fixed loan, you might be able to keep your monthly payments stable.
IRRRL Program Requirements
If you meet the following requirements, you’re eligible to apply for an IRRRL:
- You currently have a VA-backed home loan.
- You’re planning to use the IRRRL to refinance your current VA loan.
- You must use the property as your primary residence.
If you have a second mortgage on your home, the lender must permit your VA loan to be the primary debt.
VA Cash-Out Refinance
A VA cash-out refinance is an excellent choice for many veterans and service members looking to refinance their mortgage. The program also allows current VA loan borrowers to withdraw equity from their properties for various reasons, including paying off liens, covering expenses, or making repairs. It also enables qualified homeowners to convert other loans into VA loans.
The only cash-out loan allows you to use 100% of your equity. Other cash-out alternatives demand that you keep at least 20% equity in the property after refinancing. This allows you more flexibility to use the funds for your needs.
Cash-Out Refinance Requirements
The following are the minimal requirements for a VA cash-out refinance loan:
- Qualify for a VA-backed home loan.
- Ensure the lender’s and VA’s credit, income, and other criteria are met.
- Live in the house that is being refinanced with the loan.
A cash-out refinance is the best option for veterans and service members who have equity in their homes and want to use it for a specific purpose, such as covering expenses, making home improvements, or consolidating debt.
Refinancing A VA Loan To A Conventional Loan
It’s possible to refinance your existing VA loan to a conventional loan or an FHA mortgage, even though it’s not the greatest choice when considering refinancing your VA loan.
Moving your VA loan to a different product may make sense, depending on your situation. Below are a few examples of when it might be a better financial option to switch to a conventional loan in Missouri:
- If you want a rental property: If you’re going to finance both a primary and a secondary house, you usually can’t take out numerous VA loans to pay for both properties. It’s not unusual for veterans to move from one home to the next, utilize their VA loan to finance a new primary residence, and convert the property they want to rent to a regular mortgage. Working from home can be a fantastic method to make a passive income while still taking advantage of your VA benefits.
- If you have excellent credit and want better terms: Although VA loans are fantastic, they’re not always the best products on the market. If you have a high credit score and want to take advantage of lower interest rates or shorter terms, refinancing to a conventional loan could be the best decision.
- If you do not qualify for an IRRRL: The IRRRL loan from the VA is a strong option for many qualified VA borrowers, but it may be the best solution for those who don’t meet the requirements. Refinancing into a conventional loan might be the best alternative for people looking to save money on interest rates.
Conventional Loan Requirements
Though the requirements for a conventional loan vary by lender, you’ll typically need to:
- Have a minimum credit score of 620.
- Down payment of at least 3%.
- If you don’t have a 20% down payment, private mortgage insurance (PMI) is required and added to your monthly income.
- A debt-to-income ratio (DTI) of less than 50 percent is recommended.
In Conclusion
When refinancing your home loan, it’s important to understand all available options and compare them to find the best fit for your needs. If you’re a veteran or service member, a VA cash-out refinance is an excellent choice that offers many benefits. Refinancing to a conventional loan might be the best solution if you don’t qualify for a VA loan or want to explore other options. Work with a trusted local mortgage lender to compare your options and find the best loan for you.