VA loan benefits include purchase loans for existing homes or to build a home from the ground up using construction loans, but also the ability to refinance a VA or non-VA mortgage into a VA home loan.
VA loan refinancing includes a cash out option, a VA Streamline Refinance option, a Streamline loan for delinquent mortgages, and “other refinancing” to include construction loans and loans assumed by a veteran borrower “at interest rates higher than that for the proposed refinance” according to VA literature..
VA Streamline Refinancing Loans / VA IRRRLs
The VA Streamline Refinancing, also known as an Interest Rate Reduction Refinance Loan, is a refinance loan that is normally required to provide a tangible benefit to the borrower. That benefit could take the form of a lower monthly payment, a lower mortgage loan interest rate, or the ability to refinance out of an adjustable rate mortgage into a fixed-rate VA loan.
VA Streamline Refinance loans have no loan-to-value limit, a low VA funding fee, and features no VA-required appraisal or credit check in most cases.
Why do VA Streamline Refinance loans offer an appraisal-free, no-credit check refinance option? This type of refi loan takes the original information submitted by the borrower for the VA purchase loan, and uses that information to process the new loan.
Is A Credit Check Ever Required?
VA loan rules in VA Pamphlet 26-7 instruct participating lenders that a credit check associated with VA Streamline Refinancing is only required by VA loan rules in the following circumstances:
- The loan being refinanced is 30 days past due or more
- The loan causes the borrower’s monthly payment in increase 20% or higher
No Cash Out Allowed With VA IRRRLs
The borrower cannot take cash back on these loans, which is one reason there is no VA-required credit check unless the borrower chooses add-ons to the loan or adds certain approved closing costs that raise the monthly payment above a certain threshold.
VA IRRRLs: For Existing VA Mortgages Only
VA Streamline Refinance loans are only permitted for existing VA mortgages. You cannot refinance an FHA, USDA, or conventional loan with this type of VA refi.
You Can Use A Different Lender
Any participating VA lender can process your VA Streamline Refinance loan according to the VA official site.
VA Streamline Refinancing Benefits:
- Lower monthly payments
- No out-of-pocket costs required
- Lower funding fee (generally .5 percent of total loan amount)
- Funding fee and closing costs can be added to loan balance
- Allows refinances up to 100% of home’s value
- No appraisal required, in some cases
- No income, employment or credit report verification required by the VA
- No termite report required by the VA
- No need to obtain a new Certificate of Eligibility
- Extend your repayment period
VA Streamline Refinance Loans / Interest Rate Reduction Refinance Loans For Delinquent Mortgages
The VA offers IRRRL options for borrowers who have fallen behind on their mortgage payments. This is not truly a separate VA refinance loan, but there are separate rules for delinquent mortgages–any VA Streamline refinance loan on a property 30 days or more past due must be submitted to the Department of Veterans Affairs for “prior approval”.
Before this can happen, the lender is required to determine that the causes of the missed payments and loan delinquency have been resolved and that the veteran borrower is “willing and able” to make the payments on the refinance loan.
The lender is required to submit, in writing, information about the new loan including a written statement by the borrower, “acknowledging the effect of the refinancing loan on the veteran’s loan payments and interest rate.”
The written statement is also required to show the interest rate, payment amounts, and other relevant information comparing the original loan and the refinance loan side-by-side.
VA Cash-Out Refinancing Loans
VA cash-out refinancing loans are VA-guaranteed loans that can refinance “any type of lien” on the property to be secured with the loan including mortgages that are current OR delinquent, and liens from “any source” including:
- Tax liens
- Judgment liens
- VA mortgages
- FHA mortgages
- Conventional mortgages
VA Cash-Out Refinance loan proceeds are applied to the liens or the previous loan amount. Any amount of money left over after the loans are paid off and any applicable expenses are settled is provided to the borrower in the form of cash at closing.
The money can be used for any purpose the lender accepts. Some borrowers choose to pay off credit card debt, student loans, vacation expenses or other bills with cash-out funds; others choose to finance home improvements or otherwise enhance the home to increase its value.
How Much You Can Borrow
In past years, VA cash-out refinance loans were limited to 90%, but in today’s VA loan program, qualified borrowers can refinance 100% of the value of the property (a new appraisal is required).
Primary Residences Only
VA cash-out loans are for principal residences only. If you are an owner/occupier, VA cash-out refi loans are an option for you. If you are trying to refinance an investment property, you cannot use a VA cash-out refi.
Add-ons To The Loan
VA loan rules permit cash-out refinance loans to include add ons such as the VA Energy Efficient Mortgage, which allows extra funds for approved energy-saving upgrades to the home. Borrowers are also permitted to finance the VA loan funding fee as part of a VA Cash-Out refinance.
VA Cash-Out Refinance loans always require a new credit check and appraisal; borrowers should anticipate the costs of the appraisal when planning and saving for the refinance loan fees and other expenses.
Cash-Out Loans Require VA Loan Entitlement
Borrowers refinancing existing VA mortgages are paying off the original mortgage which satisfies the VA requirement for restoring entitlement used for the first VA loan. If you are applying for a cash-out refinance loan for a non-VA mortgage, you will be required to have enough VA loan entitlement to cover the new loan.
Borrowers who are not sure how much VA loan entitlement remains should discuss this issue with the participating VA lender–your remaining entitlement is listed on your VA Loan Certificate of Eligibility. That form tells the lender whether you are able to qualify for the new loan based on your existing entitlement.
With a VA Cash-Out Refinancing Loan homeowners can refinance up to 90% of the appraised value plus all closing costs (conditions apply). Whether you need money to make home improvements, consolidate two mortgages, consolidate high interest credit card debt or pay for your child’s college tuition a “Cash Out” home loan is an excellent option provided to military homeowners who have equity in their homes. This option was made available by the The Veterans’ Benefits Improvement Act of 2008.
VA Cash-Out Refinancing Benefits
- Take advantage of the equity in your home
- Pay for home improvements
- Consolidate two or more mortgages
- Use cash for emergencies and more
- Pay off higher interest rate debts
- Lower monthly mortgage payments
- Lock in a lower interest rate
- Extend your repayment period
VA refinancing loan eligibility is similar to home purchase VA loans. Speak to an approved VA mortgage lender to determine if you qualify.
Remember with a VA loan it’s easier to qualify than a conventional loan, loans are backed by the U.S. government and there is no private mortgage insurance!
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News