Understanding the VA Refinance Loan Process
Individuals who served in the military are eligible for a VA Refinance Loan to help reduce their interest rates and monthly payments. The loan may be used to refinance an existing VA loan they already have; there is no additional underwriting requirement. The entire balance of the loan including the closing costs and a maximum of two discount points are all rolled into the new loan amount. Refinancing from a current VA loan to another VA loan is called the Interest Rate Reduction Refinance Loan or IRRRL.
Refinance home loans come with certain requirements, such as a minimum credit score and income requirement. VA refinance loans have certain eligibility requirements that must be met also. You need to be an active duty service member, an eligible veteran, a current National Guard or Reserve member, or a surviving spouse in a special category. In addition, commissioned officers of the National Oceanic and Atmospheric Administration and the Public Health Service qualify for this loan. Length of service requirements must also be met, and certain exceptions may be made.
You may be able to get an IRRRL if you meet all the requirements below:
- You already have an existing VA mortgage,
- You certify that you currently live in the house, or used to live in the home covered by the loan,
- Are using IRRRL to refinance your existing VA loan.
The VA doesn’t have a minimum or maximum amount when it comes to refinancing loans but is limited in the amount of liability it can assume. As a result, borrowers may find lenders set a maximum amount of funds offered. Furthermore, the loan limits dictate how much veterans with full entitlement can borrow without any down payment, and this figure varies by county. Each eligible veteran has a basic entitlement of $36,000. Lenders will typically grant up to four times this amount with no down payment, as long as he or she qualifies in terms of income and credit.
Many individuals worry that they will not be able to negotiate the loan terms, as can be done with most conventional refinance mortgage loans. This is not the case. The interest rate may be negotiated, although all requesting a VA loan are required to pay the VA funding fee. The only exception is veterans who are exempt per their disability as stated on their COE. The funding fee can be rolled into the loan or paid up front, allowing for flexibility for service members. No appraisal is needed for this type of refinance loan, and the borrower cannot obtain additional cash from the loan at closing.
Applying For The Loan
To apply for a VA loan, the property to be refinanced must already have an existing VA loan. If you already have your Certificate of Eligibility (COE) take it to the lender to show your prior entitlement. If you don’t have your original COE, ask the lender to get your COE electronically through the VA Home Portal program. For those who have a second mortgage, an additional step will need to be taken. The second mortgage holder has to agree that they will subordinate that lien to ensure the VA loan functions as the first mortgage. This mortgage cannot be paid with the refinance loan. Borrowers need to shop around to ensure they obtain the best rates and terms, as they do vary by financial institution.
Consider a VA Refinance Loan if you are a veteran who meets the eligibility requirements. Doing so may allow you to reduce your monthly payment while saving on interest over the life of the loan. You have honorably served your country, and this is one way you can receive thanks for doing so. It’s definitely an option to consider when you wish to remain in your home and save money while doing so.
For additional information, please contact our VA Loan Specialists at 281-860-2533 or use the tools on this website.