It’s easy to understand the appeal of VA loans. As Military.com reports, these loans allow qualified borrowers to purchase a home with 100-percent financing, competitive interest rates, relaxed credit requirements, no private mortgage insurance, and limited closing costs. But what if interest rates have dropped substantially since you got your VA loan? Or what if you’re already a homeowner but you wish that you’d used a VA loan? You’re in luck. Qualified borrowers eager to redo their mortgage can choose between two VA loan refinancing options.
VA Loan Refinancing Options
What can you accomplish by refinancing? As NerdWallet explains, you can use one of the VA loan refinancing options to secure a lower interest rate, gain access to any equity that you have, or switch from some other type of home loan to a VA loan. The trick is choosing which of the VA loan refinancing options is right for your needs.
The VA’s Interest Rate Reduction Refinance Loan
An interest rate reduction refinance loan, or IRRRL, is sometimes called a streamline refinance loan because it is intended to make refinancing quicker and easier for homeowners who just want to replace their current VA loan with a new VA loan with better terms. While there is less paperwork involved since you generally don’t need a new appraisal or income verification, IRRRLs do come with certain restrictions. According to the VA, borrowers interested in using an IRRRL should consider the following facts:
- IRRRLs can only be used to secure a lower interest rate or to move from an adjustable-rate VA loan to a fixed-rate VA loan.
- Only borrowers interested in refinancing an existing VA loan can get an IRRRL.
- Borrowers cannot use an IRRRL to cash out any equity that they may have.
- An IRRRL can be used to refinance either your primary residence or a property that previously served as your primary residence.
- Closing costs can be rolled into your new VA loan.
The VA’s Cash-Out Refinance Loan
If you didn’t use a VA loan to purchase your home or want to turn your equity into cash, an IRRRL won’t work. However, you may still be able to use a VA refinance product. The VA’s cash-out refinance loan requires more paperwork, but it comes with more flexibility for borrowers and their choices. According to the VA, borrowers interested in a VA cash-out refinance loan should be aware of these facts:
- A VA cash-out refinance loan can be used to secure a lower interest rate, switch from an adjustable-rate loan to a fixed-rate loan, cash out some or all of your home equity, or convert a non-VA loan into a VA loan.
- Borrowers will need a VA Certificate of Eligibility.
- Borrowers will also have to meet credit, income, and other standards set by the VA and the lender providing the loan.
- Borrowers can only get a VA cash-out refinance loan for their current primary residence.
- Closing costs can be paid with funds from the cash-out refinance, but they cannot be rolled into the new loan.
Which VA Loan Refinancing Option Is Best?
The best VA loan refinancing option depends on your circumstances. As The Mortgage Reports explains, getting approved for an IRRRL is easier, so if you already have a VA loan and don’t want to turn your home equity into cash, it’s probably the right choice. In addition, an IRRRL is your only option if you want to use a VA refinance product for a home that you still own but no longer occupy. However, if you want to cash out your equity or replace a non-VA loan with a VA loan, then a cash-out refinance loan is going to be the best option.
At PrimeLending: Manhattan, Kansas, we are honored to serve those who have served our country. Our loan experts know the ins and outs of the VA loan program, and they’re ready to help you capitalize on the benefits that you’ve earned. To explore the possibilities offered by the VA’s refinancing options, contact us today.