If you’re looking to lower your interest rate or tap into your home’s equity to access cash and pay off debt, there are a few VA has a few loan products you should consider. Through refinancing, you can renegotiate your mortgage terms to get a mortgage that is best suited to meet your current needs.
Streamlined vs Cash-Out Refinance
There are two VA refinance options that allow homeowners to take advantage of the VA Loan benefits to get a better interest rate or cash back by accessing the equity in their home. These options are known as the VA Streamline Refinance Loan (IRRRL) and the VA Cash-Out Refinance.
VA Streamline Refinance
The VA Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance, allows you to quickly refinance your loan to get a lower interest rate. The IRRRL was created by the VA to allow veterans the ability to capitalize on lower interest rates available in the market that may not have been available at the time of purchasing the house. If you want to capitalize on interest rates available today this loan may be for you.
This mortgage product is considered streamlined, because it is generally understood that the veteran or service member will be making a lesser payment than they were before, and because of that, the risk to the lender is less than it was before. This product is beneficial for both borrower and lender in lowering overall expenses and risk.
VA Cash-Out Refinance
A VA Cash-Out Refinance allows a veteran or active duty service member to tap into the equity in their home and pull out cash to use at their disposal. There are a number of reasons why one would use a cash-out refinance, including paying off debt, upgrades or renovations to your home, emergencies, or simply pulling out cash for other ventures.
As a military member or veteran, you have the right to take advantage of the unparalleled VA Home Loan. This extends to refinancing and can be a powerful tool even after you own your home.
Due to the fact that the overall mortgage, and possibly the payment as well, is going to be higher than it was before, any veteran or service member looking to do a VA cash-out refinance should expect to have to requalify for the loan and requalify the house. Unlike the VA streamline refinance, where nothing much else is changing besides a reduction in interest rate, a cash-out refinance increases the loan amount of the home against what it was before refinancing. Because of that increased risk, most lenders are going to want the borrower to requalify for the home.
Going from Conventional to VA Loans and vice versa
A common myth about VA refinancing options is that you can’t go from a conventional loan to a VA Loan or the other way around In fact, there is an option available that is simple and allows eligible military members and veterans the opportunity to refinance non-VA home mortgages like conventional loans into a VA Loan and take advantage of the strong benefits the VA offers. Service members or veterans can also refinance out of their VA loan into a conventional loan to free up their VA entitlement.
Freeing up VA entitlement can give the veteran or service member first tier entitlement (link to this page) again which allows them to buy another home, regardless of purchase price, with no money down. This is a powerful option that allows PCSing service members, or those interested in building a real estate portfolio the ability to buy a second or third home with a VA loan. It is generally understood that you can only do this one time though.
The VA guidelines speak specifically to this situation and state that an eligible veteran or service member should only be allowed to reinstate their VA entitlement on time. If they wish to use the VA loan for a 3rd time, they must sell any properties purchased with a VA loan.
VA Cash-Out Refinance
The VA Cash-Out Refinance loan is one of the two options available for refinancing using a VA Loan. This loan is more involved than the VA IRRRL and it does provide the opportunity for eligible borrowers to go from conventional to VA Loans. Because the loan mirrors that of a VA Home Loan purchase, most of the same steps and regulations are followed like the VA Funding Fee, the appraisal conducted by a VA-approved appraiser, and the need to present a COE.
While these requirements do not exist with a conventional loan, the advantages of the VA Loan don’t either and if you make the transition over you are able to take advantage of your hard earned military benefits.
It’s important to note that even though the loan itself is called a “cash-out refinance”, borrowers who are switching from conventional loans are not required to take out any cash.
Appraisals & Inspections
Similar to a home purchase, you may need to have an appraisal and home inspection completed on your home for a refinance. For property appraisals, there are a few exceptions such as with the VA IRRRL loan (AKA the VA Streamline Refinance) where appraisals are not required.
Appraisals with VA Cash-Out Refinances
For VA Cash-Out Refinances appraisals completed by VA-approved appraisers are required to determine the value of the property. Appraisers will first assess the neighborhood characteristics and market trends/ sale prices for similar properties in the area. Then they do an assessment of the home itself. Starting with the lot size and square footages, all aspects of the property are evaluated.
Appraisers are looking for homes in great condition, they’re checking out appliances, age of renovations, amenities like fireplaces and patios and any home improvements to the home. Think about anything that would be a selling point for your home and they’re likely taking note. With VA Loans, the requirements are much stricter than other home loans so appraisers will look for additional potential hazards.
Home Inspections for Refinances
Since a property inspection is not required on any home loan and a refinance is essentially a new loan with the same owner, home inspections do not typically happen during VA Loan refinancing.
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Closing On Your Home
Closing on a loan is the final chapter when settling your VA Loan and closing happens during both a new property purchase and refinance. The closing process for the most part is the same for both purchase and refinance loans and is pretty straight-forward.
Who Attends Closing?
For a new property purchase, there are typically more people at closing than for a refinance. The exact individuals who are required to be at closing varies based on where you live but there are a few you can usually expect to see.
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Purchase Loan |
Refinance |
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Attendees can include the seller and their realtor, you (the buyer) and your realtor, a representative from a title company, and occasionally a representative from your lender, a lawyer, and a notary. |
There are less people involved in the closing process and they include you (the buyer), a closing agent, and possibly a notary. |
Congratulations on Your Refinance!
Once you finish signing all the documents during closing your work is done. Your closing agent process will provide you with a full packet of copies for your reference and you’re good to go. Keep an eye out on the mail for information on how to make your first payment on this new loan. If there are any overages in payment or escrow due to a refinance you may even receive money back.