Everything You Need to Know About VA Loan Refinance

Mortgages backed by the Department of Veterans Affairs come with economic benefits for qualified military families, ranging from competitive interest rates to 0% down payments. And in some cases, recipients can save even more by refinancing the VA loan.

Whether you’re looking for better terms for your existing VA home loan or want to refinance your conventional mortgage into a VA loan, there are a few things you should keep in mind before applying. Here’s everything you need to know about VA mortgage refinancing, from loan fees to eligibility requirements.

Types of VA Refinance Loans

There are two types of VA-backed refinance loans: an interest rate reduction refinance loan (also known as a streamlined refinance or IRRRL) and a cash refinance loan. Compare your options in the table below:

VA Streamline Refinance (IRRRL) VA Cash-Out Refinancing
The main goal is to change your mortgage rate and your monthly payments. The main goal is to take money out of the equity in your existing home.
Can also be used to switch from an adjustable rate to a fixed rate. Can also be used to replace a conventional mortgage with a VA loan.
Only available for current VA-backed mortgages. Available for VA and non-VA home loans.
The VA financing fee is 0.5% and can be rolled into your new loan. VA financing fees are 2.3% for first use and 3.6% for subsequent uses, but must be paid upfront.
Does not need to be used on a primary residence. Must be used on your primary residence.

When to Choose a VA Streamline Refinance

Will streamline refinancing is when you borrow an IRRRL to replace your existing VA-backed mortgage with a new one that has different repayment terms.

You can use an IRRRL to lower your interest rate, your monthly payment, or both. You can also switch from an adjustable rate mortgage to a fixed rate mortgage. However, you can only use a streamlined refinance if you already have a VA loan.

When to Choose a VA Cash-Out Refinance

VA Collection Refinance lets you tap into the equity in your home in the form of a lump sum of cash that can be used however you see fit. Funds from a cash refinance are often used to pay off debt, fund tuition, or make home improvements.

Additionally, VA-backed cash refinance loans can be used to transition from a non-VA loan, such as a conventional mortgage, to a VA loan.

VA Loan Refinance Eligibility Requirements

When you refinance into a new VA loan, you’ll go through a private bank, mortgage lender, or credit union to do it. Each lender has their own set of eligibility criteria, but there are some terms and conditions you should keep in mind:

  • Military service. VA refinancing is a benefit for active duty members and honorably discharged veterans, as well as their spouses.
  • Certificate of Eligibility or COE. This document from the VA verifies that you meet the service requirements to qualify for a VA refinance loan.
  • Credit score. The minimum credit score for VA cashout refinance is usually around 620, but some lenders are more lenient. Lenders may or may not require a credit check for a streamlined refinance.
  • Debt to income ratio, or DTI. Your DTI is your monthly debt payments divided by your gross monthly income. Mortgage lenders generally like to see a DTI ratio of 43% or less.
  • Home evaluation. The VA requires an appraisal for cash refinance loans, but you may not need it for a streamlined refinance, depending on your lender.

Additionally, you may be asked to provide documents to verify your identity and income, such as copies of your pay stubs, W-2s, and federal tax returns.

How to Apply for a VA Loan Refinance

1. Determine your refinancing goal. For example, if you want to lower your monthly payment on an existing VA loan, you would choose a VA streamlined refinance. Or if you want to switch from a conventional mortgage to a VA loan, a cash refinance is the right choice.

2. Shop around to compare lenders. Most lenders will let you see your estimated repayment terms with a mortgage pre-approval, which may require a thorough credit check. You can compare offers from multiple lenders within 45 days to reduce the negative impact on your credit score.

3. Choose the best loan offer for your goals. In addition to your estimated interest rate, you should also consider the annual percentage rate, or APR. This is the total annual cost of the loan, including interest and fees. You can also read customer reviews to determine if a lender will be a good fit for the long term.

4. Gather the necessary documents. You can use the certificate of eligibility from your original VA purchase loan application, or your lender may be able to request a new one electronically through the VA Home Loan Program portal. If this is your first VA loan, you may need apply for a COE from the VA directly.

5. Work with your lender during the closing process. The lender will request all necessary documents and begin the assessment process, if necessary. You will pay VA financing fees at closing – depending on the type of refinance you choose, these costs may be due up front or they may be rolled into the loan.

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