How to Decide Between a VA Streamline and VA Cash Out Refinance
With interest rates still low, this is a great opportunity to lock in a low rate and try to refinance your home.
For those who are currently serving in the military, veterans, and/or surviving spouses of service members, the road to refinancing should be a cinch.
The only major decision you’ll need to make is which VA refinance program is best for you: VA streamline or VA Cash Out.
An Easy Interest Rate Drop
The VA streamline refinance, also known as VA Interest Rate Reduction Refinance Loan (IRRRL), or VA-to-VA Loan, is a terrific option for homeowners who wish to take advantage of record low interest rates without all of the hassles involved in a traditional refinance process.
VA streamline requires almost no documentation, no appraisal, and is typically completed in a shorter time frame than other refinance programs. The most significant qualification is that your current home mortgage is a VA Home Loan.
In essence, if you currently have a VA mortgage, you’re could qualify for a lower rate should you choose this route. Even better? Borrowers can usually transition into this program with no out of pocket closing costs or fees, since they can be rolled into the new loan. The funding fee for a VA streamline loan is currently .5 percent of the loan amount.
Besides lowering your interest rate, some people may choose the IRRRL loan to move from an adjustable rate mortgage to a fixed one. Or, others may wish to convert from a 30-year mortgage to a 15-year one. In those cases, the borrower may not see a dramatic drop in their monthly payments, but the program could still be beneficial by dramatically cutting the amount of interest they pay over the life of the loan.
In order to qualify for a VA streamline refinance Loan, your current mortgage account should also be in good standing, meaning that you make your payments on time every month. If you were more than 30 days late just one time on your account in the last year, that one time occurrence will be forgiven by most VA lenders.
VA Refinance to Turn Equity into Cash
The next option to consider if you’re thinking of refinancing your VA mortgage is the VA cash out loan. Like its name implies, those who qualify for this program will refinance their mortgage, and also get some additional cash in order to make home improvements or use however they’d like.
As such, VA cash out refinancing does require a more involved application process. Applicants will have to submit income documents as well as have the home value assessed via an appraisal. The VA appraisal will determine the new value of the home, which the lender needs to evaluate the amount of equity in your home and how much cash you are eligible to receive.
In most cases, if a borrower meets all qualifications, they can refinance up to 100 percent of the home’s value. Some lenders will only go as high as 90 percent, however, so be sure to shop around as rates and terms will vary.
Another difference is that a VA cash out loan could be used to replace a traditional or FHA loan. In other words, if you do not currently have a VA home loan, you could still qualify.
You’ll have to meet military service experience/affiliation qualifications, of course. The cash out loan requires you to receive a Certificate of Eligibility (COE), whereas the streamline does not. The COE will prove that you are eligible for a VA-backed loan, so be prepared to compile documentation regarding your military background, or your status as the surviving spouse of a service member.
Finally, the fee for a first-time Cash Out refinance loan is 2.15 percent of the loan amount (2.4 percent for Reserves and National Guard members), which will be rolled into the new mortgage. If it’s your second time using a VA loan, the fee is 3.3 percent.
The good news is borrowers will still benefit from lower rates while gaining access to cash that can be used for any purpose. Keep in mind that this works differently than a home equity loan in that the cash out refinance simply replaces your existing mortgage; a home equity would be a second line of credit.
For both loans, working with a VA approved lender is key for a smooth refinancing process, since they will understand the intricacies of each program. Be sure to consider each option to see which one is best for you.
Apply for a VA Streamline or Cash Out Loan
It is a great time to apply for a VA refinance. Rates are at historic lows and lenders are eager to compete with each other to earn your business with a low rate.