Veterans have the unique benefit of securing financing with a VA loan. This benefit provides them with a flexible financing option which does not require a down payment. This gives veterans the chance to own a home without putting very much of their own money into the process, which can be great especially right when they get out of the service. Sometimes, though, veterans want to refinance. Whether it is to lower their interest rate or take cash out of the equity they built up, the home refinancing process for veterans is a little different from the rest.
The VA IRRRL Program
Veterans who want to lower their interest rate have the benefit of the VA IRRRL program. Otherwise known as the Interest Rate Refinance Reduction Loan, this program gives veterans the chance to l ower their interest rate or refinance from an ARM to a fixed rate with very little verification. They do not need to verify their income, the value of the property, their assets or their credit score. The one thing they must verify is their housing payments. They have to prove to the lender that their payments are affordable by not having any late payments in the last 12 months. If there is one late payment, it cannot be more than 30-days late, this is the only exception.
In exchange for their timely payments, the VA provides veterans the chance to lower their interest rate. This means a lower payment in most cases. The only time the rate or payment might be higher is if the borrower refinances from an ARM to a fixed rate. Since introductory rates on ARMs are usually pretty low, the new fixed interest rate might be slightly higher. As long as the veteran’s payment does not increase more than 20%, no verifications are needed. With the lower interest rate or even the fixed interest rate, the borrower becomes a lower risk for the lender and the veteran gets to build equity up in his home faster.
Because this loan does not require an appraisal, veterans are unable to take any cash out of the property. The maximum loan amount equals the outstanding principal balance plus the new funding fee of 0.5% of the loan amount and any allowed closing costs. The loan cannot increase for any changes to the home, to pay off any debts or to put cash in your hand.
The VA Cash Out Loan
The VA cash out loan is another benefit veterans can take advantage of after securing their original VA loan. This loan program differs from the VA IRRRL because the veteran can receive cash in his hand or to pay off debts. This loan does require verification of income, assets, credit scores and your home value, though. This is because there are no loan limits, with the exception of maxing out your loan amount at 100% of the property value. If your home appreciated since you purchased it, you can take out even more cash out of the equity of your home. The VA loan is among one of the only programs which allows borrowers to take out up to 100% of the value of their home for a cash-out loan.
Use Any Lender for the Home Refinancing Process
Perhaps the best news for veterans is the ability to use any lender for the home refinancing process. You do not have to use the lender who originated your VA loan. You can use any VA approved lender. This means you have the ability to shop around with different lenders too. Just because the VA oversees the program does not mean each lender does not have their own quirks. You might find one lender has more restrictions on the loans they will offer or a lender who requires appraisals even for the IRRRL program.
Take your time and shop with at least 3 lenders. This gives you the chance to find lenders who not only require the least amount of verifications, but also those who charge the least for the loan. You will likely find differences in the interest rates each lender offers – use this to your advantage and negotiate with lenders until you get the lowest interest rate possible.
The home refinancing process is the easiest for veterans, whether they want cash out or not. The VA makes the process simple for the veterans of our country and for good reason. As long as you can prove your worthiness for your original loan, the refinancing process is straightforward.
If you do take cash out of the equity of your home, though, be prepared to provide plenty of verification to prove to the lender that you can afford the higher payment if your payment increases. Remember too, you will have 100% of the equity of your home out in a loan – if you plan to move anytime soon or are older, you might not want to have all of your equity out in a loan as this leaves very little room for a return on your investment. Consider all of the factors before you decide to refinance your VA loan.