The two basic options available for refinancing with a VA loan are Interest Rate Reduction Loan (IRRRL) or a rate-term refinance.
- You can refinance a conventional mortgage with a VA refinance loan that has more favorable terms (e.g. a shorter/longer term, lower interest rate, etc.).
- Another option you have is to convert the equity in your home to cash. So long as the home has increased in value since you purchased it, this allows you to use the equity in your home to pay for home improvements, save for college, or pay off other debts, just to name a few. Your loan advisor can help determine which option is best for you.
As with refinancing any mortgage, there are certain requirements you must meet when refinancing with a VA loan. Your loan advisor will help you understand all the requirements and choose the best option:
- The veteran or spouse must certify that the home is his or her primary residence.
- The refinance must be “streamlined” with relaxed credit qualifications and/or underwriting if the loan to be refinanced is: Not past due by 30 days or more. - OR - The new monthly payment (including principal, interest, taxes and insurance) does not increase by 20% or more over the previous monthly payment.
- Unless you are refinancing from an adjustable rate mortgage (i.e. ARM) to a fixed interest rate, the interest rate on the new loan must be lower than the previous loan.
- The VA funding fee and any other allowable fees and charges must be included in the new loan. Your loan advisor will explain all the fees and charges associated with this process.
- No lien other than the existing VA loan may be paid for the proceeds from an IRRRL or “streamlined” refinance loan. If there is another lien on the property, that lien may need to be subordinated to the VA refinance loan.
- The maximum term for a VA IRRRL loan is the existing loan term plus 10 years, not to exceed 30 years and 32 days.