It’s no secret that VA loans offer fantastic advantages or that these government-backed home loans come with certain restrictions. It is only natural to wonder how your opportunities to refinance your mortgage might be impacted by using a VA loan. After all, under the right conditions, refinancing can be a smart strategy for securing a lower interest rate, reducing your monthly mortgage payments, or transforming your home equity into cash. It’s smart to know your options. That’s why astute borrowers ask, “Can you refinance a VA loan?”
Can You Refinance a VA Loan?
As Investopedia reports, VA home loans – which are guaranteed by the U.S. Department of Veterans Affairs (VA) and extended by private lenders – can be a great opportunity for eligible home buyers. Their benefits include competitive interest rates, no mandatory down payment or private mortgage insurance, relaxed credit requirements, limits on closing costs, and certain consumer protections. However, VA loans do come with a few strings attached. Borrowers must earn the right to participate in this loan program through qualifying military service, intend to make the home their primary residence at the time of the purchase, have the income and credit needed to be approved for the loan that they’re seeking, and choose an appropriate property. What about refinancing? You can refinance a VA loan. In fact, you have a few different options.
When weighing your options, it helps to have a clear understanding of what refinancing is. As The Balance indicates, refinancing is not a way of modifying your home loan. Instead, it involves securing a brand-new loan to replace your current one. Ideally, this new loan not only pays off your original loan but also allows you to move forward with better financial terms.
How can you refinance a VA loan? There are several ways to do it:
The VA’s Interest Rate Reduction Refinance Loan
The VA’s Interest Rate Reduction Refinance loan (IRRRL) goes by a few different monikers. It is sometimes called the Streamline Refinance loan because it offers a quicker, less complicated alternative to many other refinancing programs. You may also hear it referred to as a VA-to-VA loan since it can only be used to refinance VA loans. In fact, it reuses the entitlement from your existing VA loan. This allows you to skip a few steps in the approval process. You won’t have to secure a new Certificate of Eligibility, obtain a new appraisal, or wait through a new credit underwriting process. You can even refinance with an IRRRL without dipping into your own pocket by rolling the costs of refinancing into the new VA loan. However, you cannot use an IRRRL to get cash, so you’ll need to choose another path if you want to cash in on your equity.
In addition, this type of VA loan cannot be used to pay off other loans. Its proceeds can only be used to pay off your existing VA loan. What if you have a second mortgage on your property? Whoever holds the second mortgage must agree to subordinate that lien and allow your new VA loan to be considered the first mortgage. If they won’t, you’ll need to use another refinancing option.
The VA’s Cash-Out Refinance Loan
What if you want to turn some or all of your equity into cash? Whether you are eager to pay off other debts, renovate your home, or launch a new venture, refinancing with a VA Cash-Out Refinance loan may be a way to secure the finding you need. In fact, the VA will guarantee loans of up to 100 percent of your home’s value. While this type of loan involves more paperwork than an IRRRL, a Cash-Out Refinance loan gives you the ability to access the equity that you’ve built up during your time as a homeowner and use it to fund other goals.
Refinancing with Another Loan Program
Using a VA loan to purchase your home doesn’t mean that you have to use a VA loan product if you choose to refinance. As The Military Wallet points out, VA loans are a strong choice for service members, veterans, and surviving spouses, but they are far from the only good choice available to borrowers. If you consult with an experienced loan officer, you may discover other loan products that are a better fit for your circumstances.
At PrimeLending of Manhattan, Kansas, we make your needs our top priority. When you’re ready to refinance your VA home loan, our team of skilled financial professionals would be happy to help you explore your options. Our goal isn’t just to help you find a home loan; we want to help you find the perfect home loan for your unique needs. That’s why we listen carefully, provide friendly and personalized guidance, and offer an extensive selection of loan products. Contact us today to discuss your home goals and how we can assist you in achieving them.