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What to Know About VA Refinance Loans

In the same way the Department of Veterans Affairs provides home loans, the VA also offers refinancing options for qualifying VA loan applicants, including veterans who already have a VA-backed mortgage.

Refinancing can help veterans adjust their mortgage to their current financial situation. This includes potentially lowering monthly payments, changing from an adjustable-rate to a fixed-rate mortgage, or accessing cash for various financial needs.

These VA refi loans offer the opportunity to modify existing loan terms, potentially leading to financial savings or access to home equity. There are two basic options:

VA Interest Rate Reduction Refinance Loan (IRRRL)

  • Also known as the VA Streamline Refinance.
  • Primary focus is simplifying the refinancing process and lowering interest rates.
  • Typically involves minimal paperwork, less stringent eligibility criteria, and may not require an appraisal or upfront expenses.
  • Requires an existing VA mortgage. Non-VA loans are not eligible.

VA Cash-Out Refinance

  • Allows veterans to refinance their current mortgage and obtain a portion of their home equity as cash.
  • Funds can be used for various purposes, including home improvements, debt consolidation, or educational expenses.
  • You can refinance an approved VA or non-VA loan with a VA cash-out refinance.

Potential Benefits of VA Refinance Loans

VA refinance loans offer distinct advantages compared to conventional refinancing including, but not limited to the following:

  • Interest Rate Reduction: Refinancing to a lower interest rate can result in lower monthly mortgage payments. This can lead to savings over the full term of the loan.
  • No Private Mortgage Insurance (PMI): VA loans, including refinances, do not require borrowers to pay private mortgage insurance (PMI), regardless of the loan-to-value (LTV) ratio. This eliminates an added cost often associated with conventional loans.
  • Reduced Upfront Costs: The IRRRL, in particular, aims to minimize upfront costs. The streamlined process often waives appraisal and credit underwriting requirements, reducing associated fees. While the VA funding fee applies to most refinances, it can often be included in the loan amount rather than paid upfront.

Read next: VA Loan Benefits Guide

VA Refinance Loans Feature Flexible Credit Requirements

VA loans generally have more lenient credit requirements than conventional loans. This extends to refinance options, potentially making them accessible to veterans with diverse credit histories. VA refinance loans do not have prepayment penalties. This allows borrowers to make extra payments or pay off the loan early without incurring additional charges.

Streamlined Application Process to Refinance

The IRRRL is designed for efficiency. Minimal paperwork and less stringent eligibility requirements can result in faster processing and shorter closing times compared to other refinance options. The VA cash-out refinance loan option isn’t as streamlined as the VA IRRRL, but a VA cash-out refinance allows for debt consolidation. Veterans can potentially lower overall interest payments by consolidating high-interest debts into their mortgage.

The VA cash-out option can also provide funds for home improvements, potentially increasing the home’s value and livability.

What to Consider

While VA refinance loans offer potential benefits, veterans should consider the following:

  • Eligibility Requirements: Veterans must meet service requirements and have an existing VA loan to qualify for VA IRRRLs. For cash-out refinances you may be required to make a minimum amount of house payments before you can apply.
  • VA Funding Fee: This fee applies to most refinances, though some veterans may be exempt.
  • Long-Term Costs: Refinancing can lower monthly payments, but extending the loan term may increase the total interest paid over time.
  • Financial Goals: Carefully assess if refinancing aligns with your overall financial objectives.

Read next: VA Loan Benefits Guide

About the author

Editor-in-Chief | + posts

Editor-in-Chief Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.