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A VA home loan is backed by the U.S. Department of Veterans Affairs and is available to veterans, service members, and eligible surviving spouses. These loans typically come with low interest rates and don’t require a down payment.
If you have a VA-backed mortgage, you may be wondering if you can refinance to get a lower interest rate or tap your home equity to pay off debt or cover an expense. You have several ways to refinance your current VA loan. Keep reading to learn how each option works and what steps you can take to refinance.
Although Credible doesn’t offer VA loans, you can visit Credible to learn more about refinancing a mortgage.
Can you refinance a VA loan?
It’s possible to refinance a VA loan, provided you meet certain eligibility requirements.
When you refinance a VA loan, you take out a new loan with your existing lender or a new lender to pay off your current loan. The new loan will ideally have a lower interest rate or lower monthly mortgage payments. And with some types of cash-out refinances, you can take out a new loan that’s larger than your current loan and pocket the difference in cash.
You have three options for refinancing your VA loan:
VA streamline refinance
A VA streamline refinance, also known as an interest rate reduction refinance loan (IRRRL), allows you to refinance to a new VA loan with a lower interest rate. As a result, it could lower your monthly payments and help you save on interest.
Choosing a VA IRRRL could make sense in several situations. For example, if you have an adjustable-rate mortgage (ARM) with unpredictable monthly payments, this type of loan allows you to refinance to a VA loan with a fixed rate, making your monthly payments more predictable. This loan could also be a good option if you want to refinance to a lower rate without undergoing a credit check.
Who’s eligible for a VA streamline refinance?
You can qualify for a VA streamline refinance if you meet these conditions:
- The loan you’re refinancing must be a VA loan.
- You can prove you previously lived in or currently live in the home.
- Your new loan term can’t be more than 10 years longer than your original loan term; it also can’t exceed 30 years and 32 days.
What are the costs for a VA streamline refinance?
When you do a VA streamline refinance, you’ll pay a one-time VA funding fee that’s 0.5% of the loan amount. For example, if the loan amount is $100,000, the VA funding fee will be $500. You’ll also have to pay any closing costs and appraisal fees that the lender charges. You can typically include the funding fee and any other closing costs in the new loan.
VA streamline refinance pros and cons
Here are some pros and cons to keep in mind when considering a VA refinance loan:
Pros
- Home doesn’t have to be your primary residence to qualify for refinancing
- Appraisal may not be required
- Typically no credit underwriting required
Cons
- Closing costs
- VA funding fee of 0.5%
- Underwriting required if your monthly payments increase by 20% or more
VA cash-out refinance
A VA cash-out refinance allows you to tap the equity in your home. You can also refinance from a non-VA loan to a VA loan (if you’re eligible) without taking any cash out.
With the cash-out refinance, you’ll replace your existing mortgage with a new, larger loan. Once your old loan is paid off, you’ll receive the difference in cash at closing, minus closing costs. You can borrow up to 100% of your home’s appraised value, which is unique. Most conventional cash-out refinances only allow you to borrow up to…
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