The purchase loans backed by the U.S. Department of Veterans Affairs (VA) generally come with great terms. However, that doesn’t mean that you’ll never want to refinance to try and secure an even better deal. When it comes to refinancing VA loans, what do you need to know?
Refinancing VA Loans
There are many reasons why homeowners choose to refinance. You might want to get a lower interest rate, lower your monthly mortgage payment, or shorten your loan term. You may want to switch from an adjustable-rate mortgage to a fixed-rate one, or vice-versa. Or, you may hope to turn some of your home equity into cash to make improvements to your home, pay education expenses, or consolidate debts. When refinancing VA loans, there are three basic options:
Refinance with a VA Cash-out Refinance Loan
If you want to replace your VA loan with another VA loan and turn some of your equity into cash, then you’ll want to apply for a VA cash-out refinance loan. This form of financing can be used by anyone who is eligible for a VA loan, and both the borrower and the property will need to go through the full underwriting process and meet all the stated requirements to secure the loan. As with VA purchase loans, VA cash-out refinance loans can only be used for a property that you intend to use as your primary residence. What about closing costs? They can generally be rolled into the loan if you’d like to keep your out-of-pocket costs down.
Refinance with a VA Interest Rate Reduction Refinance Loan
If you want to replace your VA loan with another VA loan, but you aren’t interested in a cash-out refinance, then you have another option: the VA interest rate reduction refinance loan (IRRRL). The IRRRL is only available to borrowers who are refinancing an existing VA loan and want to use the IRRRL to refinance that loan. In addition, they must be able to certify that they either currently reside in the home or did so at some point in the past. This refinancing product is sometimes called the streamline finance because it offers a quicker and more affordable alternative to the VA’s cash-out refinance. Because it’s only available to those with existing VA loans, the IRRRL uses a streamlined process that allows lenders to skip over some of the typical underwriting requirements, which saves both time and money. If you aren’t interested in cashing out your home equity, then an IRRRL can be a great way to snag a lower interest rate and a lower monthly mortgage payment. It can also be a smart way to make the switch from an adjustable-rate mortgage to a fixed-rate mortgage.
Refinance with a Non-VA Refinance Loan
Starting your journey as a homeowner with a VA mortgage doesn’t mean that you have to finish it that way. Refinancing with a non-VA loan is always an option. As Credible points out, some VA borrowers opt to refinance with a non-VA loan so that they can restore their VA entitlement. Military families move a lot. With their full VA entitlement restored, they’ll be able to use a VA loan to buy a property in their new location while retaining the property they refinanced as an investment property. However, like VA refinance options, non-VA loans have their pros and cons. For example, borrowers who opt for a conventional refinance will likely find that their interest rate is slightly higher than those who go with a VA refinance. In addition, if they have less than 20 percent equity, they will generally be required to pay for private mortgage insurance (also known as PMI), which can add hundreds of dollars to their monthly mortgage payments.
Are you thinking about refinancing a VA loan? At PrimeLending Denver, we’re serious about delivering top-notch service to those who are serving or who have served, so we make it a point to make the process of applying for a VA loan quick and easy. Whether you’re interested in a fixed-rate loan, an adjustable-rate loan, a jumbo loan, a renovation loan, or refinancing, we’re here to help. That means that we’re ready to answer any questions that you might have and offer our assistance every step of the way. If you’re ready to explore the possibilities, contact PrimeLending Denver today.