7 Benefits of Refinancing with a VA Loan
06-20-2020 • MHS Lending
There are many reasons you might choose to refinance your home. One of the most popular reasons is so you can lock in a lower interest rate that wasn’t available at the time you purchased your home. Another reason is to get cash back in order to finance another big purchase. Refinancing a VA loan is very similar to buying a house with a VA loan. Essentially you are rebuying your home and starting with a new mortgage.
With a VA loan, you can either lower your interest rate with an Interest Rate Refinance Reduction Loan (IRRRL) or pull out cash from the equity in your house, which is known as a cash-out refinance. Both of these refinance options offer some pretty amazing benefits.
The IRRRL is Streamlined
The Interest Rate Refinance Reduction Loan was created by the VA and is a streamlined refinance option. The IRRRL allows veterans the ability to capitalize on lower interest rates available today that may not have been available at the time of purchasing their home. Qualifying for and facilitating this loan is a simple process since the goal is to end up with a lower monthly payment or lower interest rate.
What makes the IRRRL a streamlined process is the reduction in requirements. There is no appraisal or appraisal fee necessary since you’re only looking to adjust your interest rate and not sell your home. There is also no minimum credit score or income requirements due. Finally, you can opt to roll closing costs into this new loan to avoid any out-of-pocket costs during refinancing.
Less Paperwork is Required for the IRRRL
Since the IRRRL is often referred to as the streamlined refinance, it makes sense there is less paperwork required. One way there is simplified is that you don’t need to prove your income. Generally, when purchasing or refinancing your home you need to provide paycheck stubs, tax forms, and employment verification. With the IRRRL, these are all not necessary which makes it a quick and efficient option for refinancing.
Funding Fees are Lower for IRRRL
VA loans are subject to a funding fee which is added to the total loan. Funding fees work similar to a deductible on car insurance and are paid directly to the VA. These fees are insurance for the VA and helps offset losses should you default on your mortgage.
For typical VA loans and cash-out-refinances, funding fees are 2.3% for first time users and 3.6% for subsequent use. With IRRRL refinances, the fees are significantly lower at only 0.5%. This fee can be bundled into the full loan amount to avoid out-of-pocket costs at the time of refinance. It’s important to note that there are a few times when funding fees may be waived for any VA loan. Some exceptions include when a veteran has a 10% or greater service-related disability or an active duty member has been awarded the purple heart.
Your Home Doesn’t Have to be your Primary Residence for IRRRL
In order to qualify for a VA loan, you will likely have to reside in the property for at least one full year before renting it out or selling. There are exceptions to this rule for people on active duty if they receive orders that require them to move. With the IRRRL, you are able to refinance your VA loan even if the property is not your primary residence. This means if you’re looking for a lower monthly payment and/or interest rate but don’t live there you are still able to take advantage of this loan option.
You Don’t Need to Have a Current VA Loan for Cash-Out Refinances
Many people think that you need to already have a VA loan in order to reap the benefits of cash-out refinances. This is a myth, and in reality, all you need is your certificate of eligibility from the VA (COE). Eligibility requirements for the VA loan is straightforward and spelled out by the Department of Veterans Affairs. If you are eligible to receive your COE, you can take advantage of any VA loan product.
Cash-Out Refinances have no PMI
A VA cash-out-refinance loan allows a veteran or active duty service member to tap into the equity of their home and pull out cash. Similar to conventional refinances, your home must be worth more than the amount you owe on it. With VA cash-out refinances, monthly payments can stay low if you still owe more than 80% of the home’s value. This is because all VA loans have no private mortgage insurance (PMI). VA loans are known for being more affordable overall and a lot of this has to do with no PMI. Cash-out refinances are great ways to take advantage of VA loans and keep your monthly costs down.
You Can Refinance up to 100% of your Home
Many conventional loans only allow you to refinance up to 90% of the current value of your property. With VA loan refinancing through IRRRL, you can refinance up to 100% of your home’s value. For cash-out refinances your new loan will replace your existing mortgage and can represent up to 100% of the property’s value. The VA loan refinance options allow you flexibility in your refinancing journey that other loan products don’t provide.
Veteran Zeny was looking at interest rates and realized it might be a good time to refinance her home. She and her husband had been in their home for a few years and wanted to see if they were eligible to lock in a better rate. After reaching out to the team at MHS Lending, Zeny and her family started the process of refinancing and ended up dropping their rate and saving significantly.
“Caleb was very helpful and patient with us. He explained the whole process to us and was available and prompt in returning our emails and phone calls. The whole process went smoothly because Caleb really put us at ease throughout.” - Zeny Bate
There are many benefits to refinancing a home and the IRRRL and cash-out refinances are incredibly popular loan options for VA loans. With the IRRRL you can take advantage of significant savings with lower interest rates and/or monthly payments. With cash-out refinances you have the ability to access the cash you need. At MHS Lending we are experts in VA loans and will help you determine what your options are and seamlessly navigate the process so you can take advantage of the powerful benefits of VA loan products.