Those who are eligible for. VA home loan will be able to consider refinancing it as well. After 90 days of active-duty military service during a named conflict, six years of service in the National Guard, or 181 of active duty during peace, you can go for one of these types of loans or refinancing that you would like.
Going through the refinance process can be difficult. There are steps you must take to get this done, including an evaluation of the value of your home and enough funds to get it done. Let’s take a closer look at some of the ways you can refinance your VA home loan.
Interest Rate Reduction Refinance Loan
The IRRRL or Interest Rate Reduction Refinance Loan is a good option to use if you already have a VA loan and you would like to do the refinancing in order to get a lower interest rate than you had in the beginning. When interest rates drop quite a bit since you purchased your home, then this will make a lot of sense for you to use.
This loan option can be a good one because it allows you to get the refinancing done without an appraisal or any credit underwriting in the first place. And you can even include the closing costs that you usually pay for a refinance into the loan product. Because there are closing costs though, it still makes sense to shop around for the best option.
The funding fees that come with the IRRRL VA loan will often be much lower than the fees you paid when you first applied for the original VA loan to purchase the property. This can make it an affordable option to change the interest rate and cut down on your monthly payment.
This loan is a smart one to choose if you find you qualify for a lower interest rate because the rates overall went down and you would like to have a lower monthly payment at the same time. You need to make sure that the rate went down enough to make this option worth it, or you will pay too much in closing fees based out of the reduction that you get.
The main drawback of this kind of VA refinancing is that you will not be able to get cash out from the equity of your home. You are just getting a new loan for the amount that you still owed on the home. The point is to lower the monthly payment, but not for you to get cash out.
VA Cash-Out Refinancing
The second option that you can choose with a VA refinance is a cash-out refinance. If your home has grown in equity or you have paid down a good amount of the mortgage and have earned your equity, it is possible to refinance and have more money to do other things around the home, like big home improvement projects.
With this VA cash-out refinancing loan, you will be able to refinance the mortgage on your current home and then take out some, or even all, of the equity that has accrued there. With this option, you will be able to have cash that will be useful for paying off debt or making home improvements.
Before you decide to go with this option, you must be clear about your goals for the money. If you just take the money out and do not have a clear goal in mind, it is easy to spend too much of the money and you will still have the huge balance to pay off on the home later on.
This loan type is often used to help refinance an existing VA loan or it can be used with a conventional mortgage if you did that in the past. The nice thing about this one, you will be able to get up to 100% of the value of the home. Many conventional mortgages will cap you at 80% instead, so this gives you a little bit more room to play with.
The biggest thing here is that there are a few more requirements. There will often need to be an appraiser because the bank will want to know for sure how much your home is worth, rather than just taking your word for it. You will also need to meet all of the military service requirements that we listed above while also having a certificate of Eligibility on hand.
Choosing a VA Loan Refinance
Many homeowners decide that they want to refinance their mortgage to help them reach their goals. Whether they refinance to get a lower interest payment so they can have smaller monthly payments or they choose to do a cash-out refinance to help with home improvement projects or to cut down on debt.
Once you have decided that a VA refinance is the best option for you, take the time to shop around to find a good deal. There are a lot of options on the market that you can choose, and not all of them will provide you with the best in rates or terms along the way, saving you more money on the new mortgage.
Talking to more than one bank can be critical here. This will ensure that you know the average rates and what the closing costs will be. It is possible that several banks can offer the same product, but different interest rates or lending fees. Shopping around is one of the best ways to learn whether you get a good deal or not on your VA refinance.
Choosing the Right VA Home Loan Refinance
There are many reasons why you may consider a VA refinance on your home. The reason that makes the most sense for you will help you determine which of the two options are the best for you. take a look at the two main options and see which one will help you reach your goals while paying down your mortgage.