By After a mortgage rescue program for veterans recently ended, many may be worried about how they can keep up with payments and maintain ownership of their home. Luckily, there are options to make the mortgage more affordable on a monthly basis—and even cover pricey home repairs using a current loan. For many veterans and active-duty military members, refinancing may be the way to go as everyday costs continue to rise. Keep reading to learn more about the benefits of refinancing VA loans, eligibility requirements and how to get started.
The benefits of refinancing a VA loan
VA loans, which are guaranteed by the Department of Veterans Affairs, are appealing because they require no down payment, no private mortgage insurance, and often offer a competitive interest rate and flexible requirements. But over time, borrowers may still find themselves struggling to make payments. One way to help ease the financial burden is by refinancing.
“The VA home loan refinance program provides qualified homeowners with a simple way to take advantage of lower rates and decrease their monthly mortgage payment,” write the experts at VeteransUnited.com. “Beyond that, veteran and military homeowners can get cash back on a VA refinance and use the proceeds for a variety of needs, from paying off debt or making home improvements and much more.”
It can often be quite cost-effective, as well, because no mortgage insurance is needed, there are minimal upfront costs, no prepayment penalties and the refinanced VA loans are easier to get than other mortgage loans.
Who is eligible for VA loan refinancing?
VA loan refinancing is available to both active duty service members and former U.S. military members. There are other criteria borrowers must meet to be eligible, according to BankRate.com.
- Minimum service served. A VA home loan requires that borrowers have at least 90 days of active-duty service during a conflict, six years in the National Guard or Reserves or at least 181 consecutive days of active duty during peacetime. (Some spouses can also qualify, depending on the situation.)
- A fair credit score. Though there technically isn’t a minimum requirement, most lenders want to see a credit score of at least 620.
- Sufficient income. Borrowers need to have enough money to repay their loans and the debt-to-income (DTI) ratio is usually capped at 41 percent.
- Primary residence. The property purchased with a VA loan must be a primary residence, and generally, you should occupy it within 60 days of closing.
In general, you also need to wait at least 210 days after the due date of your first payment to refinance. Lenders will also want to see at least six months of on-time monthly payments from you already.
There are two different types of refinance loans available to veterans, and each has its own set of requirements. Keep reading to learn more about these options.
Options for VA loan refinancing
Interest Rate Reduction Refinance Loan (IRRRL)
With this type of loan, usually referred to as a “streamline” refinance, borrowers will either get a lower monthly mortgage payment thanks to a lower interest rate, or their monthly payments will be more consistent by moving from a variable interest rate to a fixed rate.
To be eligible, you have to already have a VA-backed home loan for your property that you’re looking to refinance and you must currently live in the home or have in the past.
While a VA IRRRL can make your monthly payments more affordable, you will have to pay closing costs when refinancing. You may also have to pay the one-time VA funding fee, which VA.gov shares is used to “lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.”
Luckily, you may be able to include these costs in the loan itself so you don’t have to pay them upfront.
Cash-out Refinance Loan
This loan option is for homeowners who want to take advantage of their home’s equity to access funds or to refinance a non-VA loan into a VA loan. To qualify, you must have the necessary Certificate of Eligibility (COE), meet all the requirements set by the VA and your lender (income, credit, etc.) and live in the home you’re looking to refinance.
If you’re simply looking to cash out your equity, that money can be used to fund home improvement projects, pay off other debt, create an emergency fund, etc. Refinancing to a VA loan, on the other hand, could mean more affordable monthly payments.
Like the IRRRL, you will have to pay closing costs, the VA funding fee and any additional charges. But this option will also involve a home appraisal ordered by your lender to determine the value of your home.
How to refinance a VA loan
Thinking of refinancing a VA loan? Here are the steps involved with making it happen:
- Find a lender. This can be a private bank, mortgage company or credit union—the loans are not given out through the U.S. Department of Veterans Affairs.
- Request/provide the COE. You will then show it to your lender to prove eligibility for a VA loan. (If you don’t have your original certificate, they can access it for you digitally through the VA Home Loan benefits program portal.)
- Give the lender other necessary information. This often includes tax returns, pay stubs and W-2 forms for a cash-out loan.
- Follow the closing process. This is when you will pay any of the costs and fees if they aren’t included in your loan.
Once the refinancing is finalized, you’ll start to have more money in your pocket!
