Now Is the Time for a VA Refinance: Here’s Why
Now is the ideal time to apply for a Veterans Affairs (VA) refinance on your VA mortgage. Because of the upheaval caused by the current COVID-19 pandemic, and the virus’s future effects on the United States’ economy, the Federal Reserve has taken actions in your favor.
The Federal Reserve has bought an unprecedented amount of mortgage-backed securities (MBS). These are investments like bonds but are bundles of home loans bought from the banks that issued them. The current price of MBSs ranks high in determining your mortgage rate. The Feds have dropped rates hoping to invigorate the economy when we emerge from the COVID-19 pandemic and people return to work.
What is a VA refinance?
When you already have a VA-backed mortgage loan for your home, a refinance is a brand-new loan. Depending on the type of loan you apply for, you can change your interest rate, thereby reducing your monthly payments or take cash out from the equity you have in your house.
The VA offers three different types of refinancing: The Interest Rate Reduction Refinance (IRRRL) Loan or VA Streamline Refinance, the VA Cash-out Refinance Loan and the Conventional to VA Refinance Loan. For our purposes, we’ll concentrate on the first two, as the Conventional (also includes FHA) to VA Refinance is very rare. This change is beneficial if where you live, current property values have become worrisome.
The IRRRL or VA Streamline Refinance has an abundance of benefits, especially now when many people don’t have jobs. This is the loan for you if you want to refinance to a lower interest rate and a reduced monthly payment.
You do have to fill out an application, as you need to for any of these refinances, but you don’t have to document your income or even prove you’re employed. The VA doesn’t require a credit report either, but your lender will check to make sure you haven’t had more than one late payment in the past 12 months. An appraisal isn’t required.
That’s good news considering some state leaders like New York’s Governor Andrew Cuomo have removed real-estate appraisers from the list of workers considered essential during the pandemic. Appraisers and inspectors in those states may not be working for at least the next month.
A VA Streamline Refinance has few downsides. The outcome of this type of refinance must be a lower mortgage payment for the veteran or a change from an adjustable-rate mortgage (ARM) to a fixed-rate loan. The VA Streamline won’t refinance an existing conventional or FHA loan. You also can’t retain any of the loan in cash.
A VA Cash-out Refinance is the second type of refinance that might be appropriate now. This one replaces your current existing VA home loan and is also a brand-new loan. But unlike the Streamline, it takes some of the equity you have in your house and gives it back to you in cash.
The maximum amount of funds you can get depends on the current appraised value of your property. Most VA lenders will loan you up to 90 percent of the appraised value, except if you live in Texas. Then it’s only 80 percent of the appraised value.
Full documentation is needed for a VA Cash-out Refinance. That includes a new appraisal, verification of both income and employment and a credit score of 620 or higher.
Why do you want a VA refinance loan?
Consider your reasoning for taking out a new VA refi before doing anything else. Do you want a lower monthly payment? Would you like to shorten the time you have left to pay off your home? Do you currently have a VA adjustable-rate mortgage (ARM) and would like to change to a fixed-rate mortgage? All these reasons point to a Streamline Refi.
If you need cash to pay bills, pay off a loan or even for day-to-day expenses in these trying times of the global COVID-19 pandemic, then the VA Cash-out Refi is for you. Once you’ve decided on the reason you want a refinance then you’ll know what you need.
Why should you get a VA refinance now?
Refinances are currently very high in demand. In the same March 26 Washington Post article that talked about the Federal Reserve buying MBSs, Bob Broeksmit, president and CEO of Mortgage Bankers Association said refinances are 195 percent higher than a year ago.
That’s why you want to get all the appropriate paperwork completed accurately and turned in soon so you’re not at the back of a long line.
Here are some tips on preparing for a refinance.
Steps to get a VA Streamline refinance:
- Shop for a VA-approved lender online – consumer lenders, banks, and financial institutions are all open because they are considered essential during the COVID-19 pandemic.
- Provide information on energy-efficient improvements – only if you plan to use some of this loan (it can be up to $6,000) for making your home more energy-efficient.
- Pay your mortgage on time – Verification by your lender of on-time mortgage payments needs to be provided to the VA.
- Fill out the refi application – check for completeness and accuracy.
Steps to get a VA Cash-out refinance:
There are no restrictions on how you use this money once you get it.
- Shop for a VA-approved lender – terms and fees vary so look for the best option for you.
- Fill out the new loan application – accurately and completely.
- Find your Certificate of Eligibility (COE) – if you can’t locate it, you can apply for a new one. Visit https://www.vba.va.gov/ and search for “VA Form 26-1880.”
- Provide paycheck stubs – These need to come from the most recent 30-day period.
- Supply your lender with W-2 forms – These should be for the past two years.
- Give your lender your federal income tax returns – also from the past two years, although not all lenders require these.
- Check your credit – so you’ll know if you meet your lender’s and VA standards.
- Hand over any other information your lender requires.
- Have money available – for VA funding fees and closing costs. By providing everything needed, you’ve done your part to ease the lender’s workload and to expedite your refinance.