There are several ways to refinance a VA loan. The type of loan you choose depends on the outcome. Do you need to take money out of the equity of your home or do you want to lower your payment? If you strictly want to lower your payment, you may be able to take advantage of the VA Interest Rate Reduction Refinance Loan, which is a streamlined loan program. If you want to take cash out, whether to consolidate your first and second loan or to make improvements to your home, you have to go through the fully verified VA refinance. Either way that you choose, the good news is that your current lender is not the only option for your refinance.
Shop Around
The best thing you can do to ensure you get the best deal on your VA refinance is to shop around. You can always start with your current lender, but you should not restrict yourself to that lender alone. Many lenders out there offer VA loans. You will not know what they have to offer if you do not get a quote from them. The only thing to be careful with is to ensure that you only apply with lenders that have VA approval.
Shopping around with other lenders gives you the opportunity to see the interest rates offered by other borrowers. If you stick with your same lender, you will not know what else is out there. This does not mean your lender would take advantage of you, but there might be another lender out there that might offer better terms that your current lender has the ability to offer you.
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Verification is Required with any Lender
One of the best reasons to shop around for a VA loan is because any lender will need to verify the information you provide on the application. This is especially true if you need a cash out VA loan. This loan requires you to verify the following information:
- Income with paystubs, W-2s and possibly tax returns
- Assets with current asset statements for the last 12 months
- Employment with a Verification of Employment from your employer
- Your current credit scores
The cash out loan requires you to verify every aspect of your application in order to receive approval. There is a higher level of risk in the cash out loan since you need to tap into your equity. The lender needs to confirm that you can afford this loan and that you will not be a high risk for default.
If you want to take advantage of the VA IRRRL program, you will not have to verify most of the above information, but some lenders might require a little verification in order to ensure that you can afford the loan. According to the VA, the VA IRRRL program does not require verification of:
- Income
- Assets
- Credit score
- Value of your home
This does not mean a lender may not require it. Some lenders want to ensure that your home did not lose excessive value or that your credit score did not drop dramatically. Any lender, no matter who you choose, however, will need to verify your housing history. You must have on-time mortgage payments for the last 12 months in order to qualify for the VA IRRRL.
Negotiating Closing Costs
One of the largest reasons to shop around rather than using your current lender alone is to determine the normal closing costs for your area. The VA has a strict rule regarding which closing costs a lender can charge, but there can still be a stark difference from one lender to another. In addition, some lenders allow you to roll your closing costs into your VA loan, while others require them paid at the closing. If you cannot afford to pay your closing costs up front, you need to find a lender willing to roll the costs into the loan.
Shopping around also gives you leverage with your current lender. If they know you want to refinance and they know that you plan to shop around, they might be willing to give you a better deal than they originally offered. They do this in an effort to avoid losing your business.
The VA is in Control
The bottom line is that the VA is in control of VA loans. They set forth strict requirements to ensure that no lenders take advantage of VA borrowers. Veterans receive the benefit of the VA loan because of the service they provided to our country and the VA wants to make sure they are well cared for. This means controlling the closing costs and the interest rate offered on the loan. Because you have this protection, it is perfectly acceptable to talk to different lenders to compare your interest rate, closing costs, and APR to see which loan offers you the most lucrative financing not only now, but in the long run as well.
Your current lender could certainly be a good place to start if you want to refinance with a cash out or VA IRRRL, but you should not restrict your search to this lender alone. Take a chance and see what is out there. If you find that your lender now has the best terms and costs, then go ahead and refinance with them, but at least you will have the peace of mind knowing that you found the best deal for yourself.
