With their attractive terms, competitive interest rates, and consumer protections, VA loans have long been a popular financing option for eligible homebuyers. What if you’re a homeowner interested in refinancing? VA loans are worth exploring. Learning how to refinance a VA loan can help you make smart decisions about what refinancing product best suits your needs.
How to Refinance a VA Loan
As Investopedia points out, there are many reasons to consider refinancing. Learning how to refinance a VA loan can help you achieve a variety of goals:
- Secure a lower interest rate
- Reduce your monthly payment
- Shorten the term of your existing mortgage
- Trade your equity for cash
- Consolidate multiple mortgages into a single VA loan
- Convert a conventional or FHA loan into a VA loan
- Change from an adjustable-rate loan to a fixed-rate loan
Step One: Choose a Refinance Option
When refinancing with a VA loan, you have two choices. The first is a VA Cash-Out Refinance Loan. Although this form of refinancing is the more complicated option, it’s the only one that allows you to turn your equity into cash. In fact, you can be approved to borrow up to 100 percent of your home’s value. The Cash-out Refinance Loan is also an option if you want to convert a conventional or FHA loan into a VA loan.
The VA Interest Rate Reduction Refinance Loan (IRRRL) is another alternative for those who want to refinance with a VA product. Commonly referred to as an IRRRL, Streamline Refinance, or VA-to-VA Loan, it is designed to help homeowners with an existing VA loan secure a better interest rate with a minimum of fuss. It can only be used when refinancing a VA loan for a property that you have already used your entitlement on, but that property does not have to be your primary residence. You simply have to certify that it was your primary residence at some point.
Step Two: Locate a Lender
VA loans are backed by the U.S. Department of Veterans Affairs, but the VA does not actually originate these loans. Instead, private organizations approved by the VA provide loans that conform to the guidelines established by VA, offering favorable terms in return for the VA’s guarantee of a portion of the loan. Anyone who wishes to refinance with a VA loan must locate a lender who participates in the VA loan program. Ideally, you should select a lender with a great deal of experience in handling VA loans. Their expertise allows you to have access to both the information that you need to fully explore the possibilities and to the professional insight that can help you choose the best option for your situation.
Step Three: Complete the Necessary Paperwork
With any major financial transaction, there will be paperwork. Refinancing a VA loan is no exception. While your lender will guide you through the process, it’s good to know that the amount and type of paperwork you’ll need to provide depends on the type of refinancing that you select. With a Cash-out Refinance Loan, the paperwork required is similar to what is needed for a home purchase. According to The Mortgage Reports, you will need to provide income documentation like tax returns, W2 forms, pay stubs, and bank statements. You’ll also need to establish your eligibility for a VA loan. The bank will review your application to verify that you have the financial means to qualify for the requested loan, and a new appraisal will be ordered to establish the current value of your home.
The paperwork requirements for an IRRRL are much lighter. As Military.com explains, the VA only requires the lender to collect a loan application and verify that there was no more than one payment more than 30 days past due over the course of the last year. While some lenders may require more details, the VA does not compel borrowers seeking an IRRRL to provide income documentation, evidence of employment, or a credit report. There’s no need for a new appraisal of the property, and because the new loan reuses the same entitlement that your prior VA loan used, you don’t have to offer evidence of your eligibility.
Step Four: Attend the Closing
Closing is the final step in the process of refinancing a home loan. The necessary paperwork is signed, your old loan is paid off, and your new loan goes into effect. Although the process should be roughly the same for either refinancing option, Investopedia reports that closing costs are generally higher for a Cash-Out Refinance Loan than for an IRRRL.
At PrimeLending: Manhattan, Kansas, we’re committed to helping active-duty members of the military and veterans capitalize on the benefits that they’ve earned. To learn more about buying or refinancing a home through the VA home loan program, contact us today to arrange a consultation. Every year, we help thousands of veterans and active-duty members of the military buy or refinance their homes through the VA home loan program. We offer 100% financing with competitive interest rates – no down payment or PMI required! To learn more about how to refinance a VA loan, please give us a call at 785-560-3011 or contact us online. It’s our turn to serve you!