Years after the housing disaster that brought the US economy – and most of the world – to its knees, various mortgage programs have sprung up to cater to the variety of borrower needs. Still, few can rival the ease and leniency of VA home loans.
VA mortgages are exclusively available to military members, reservists, veterans, National Guard members, as well as surviving spouses of members who died on active duty or due to any service-related injury.
Regarded as one – if not “the” best mortgage programs out there today, a VA mortgage offers 100 percent financing without mortgage insurance, has interest rates lower than conventional loan programs, requires no credit check, as well as asset or income verification.
It offers a tremendous opportunity for our modern heroes to obtain a home easily.
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When it comes to refinancing, the VA also offers the same leniency, allowing the total value of the home to be refinanced without any cost on the homeowner. They also don’t have to pay for mortgage insurance.
Now there are various means of refinancing a VA loan. Let’s get to know these options in detail.
Refinance Option 1: The VA Streamline Refinance Program
Also known as the VA Interest Rate Reduction Refinance Loan or IRRRL, this refinance program is solely available to homeowners who are already carrying VA loans.
It requires less documentation, thus the term streamlined. You are not required to go through a credit check, nor any appraisal to get an approval. However, some lenders do not follow this rule to the book and may still proceed to do the evaluations to determine the borrower’s credit risk.
IRRRL’s main goal is to reduce a homeowner’s monthly mortgage payment by lowering his or her interest rate. Thus, the new arrangement should result in such, except for when the borrower refinances to a shorter term.
Those who choose to refinance under the streamline program will pay a lower funding fee amount compared with other VA loan refi options. Typically, this fee totals 0.5 percent of the overall amount of the loan and may be rolled into your balance.
Take note that refinancing with IRRRL will not pay off a second mortgage. You may have to secure an approval from your second lender to supplement the loan.
Refinance Option 2: Cash-Out Refinance
With the IRRRL, you cannot refinance an existing loan that is not currently backed by the VA. This is one of the most salient differences between the first two refinance options.
Another is that you cannot take any cash out of your loan with the streamline program, a feature that is the primary function and purpose of this second option.
The VA’s cash-out refinance program is designed for veterans who either have an existing VA loan or a conventional loan. It’s a way of tapping into a homeowner’s earned equity on their home and take all or a portion of it as cash.
There may be instances that the lender won’t allow a cash-out due to certain internal policies, but some do allow 100 percent refinancing in order to pay off the old loan.