VA Refinance: The Complete Guide | Rates & Requirements 2021
A VA refinance can help you lower your interest rate and monthly payment, and in some cases, you might be eligible for cash as well.
There are two ways to refinance this with the VA loan program: the VA Interest Rate Reduction Refinance Loan (IRRRL) or the VA cash-out refinance.Click here for a refinance quote from a VA loan expert (Oct 26th, 2021)
In this article:
- Benefits of a VA refinance
- Your VA refinance options
- VA refinance rates
- Our featured VA refinance lenders
- How to refinance with a VA loan
- What is a VA Streamline Refinance?
- What is a VA cash-out refinance?
- VA Refinance FAQ
A VA refinance can come with a number of significant benefits, many of which save you money both now and in the long run.
Because these loans are backed by the Department of Veterans Affairs, mortgage lenders can afford to pass substantial benefits on to VA borrowers.
For example, VA refinancing can:
- Reduce your interest rate
- Lower your monthly payment
- Help you pay off your loan sooner
- Give you cash to pay off higher-interest debts, cover sudden bills or medical expenses, and more
VA refinances also have substantial benefits compared to conventional and FHA loan refinancing.
For one, you often won’t need a credit check or a home appraisal. This can save time and money during the refinancing process. You also don’t need a high level of equity to refinance a VA loan. This can be helpful if you bought the home recently and want to leverage lower interest rates.Click here to check your eligibility for a VA refinance (Oct 26th, 2021)
The VA loan program offers two refinance loan options:
- VA Streamline Refinance: Allows existing VA borrowers to quickly and affordably reduce their interest rate and monthly payment.
- VA cash-out refinance: Allows borrowers to convert their home equity into cash while reducing their interest rate.
Both refinance offer considerable benefits, depending on your specific refinance needs.
VA refinance rates remain low this year. According to the June 2021 ICE Origination Report, interest rates for VA loans were 2.92% on average. This is more than a quarter of a percentage point lower than average 30-year conventional loan rates.
As rates continue to stay low, veterans who purchased a home with a VA home loan in the last few years should check to see whether a VA refinance could reduce their interest rate and monthly mortgage payment.
The amount of money you could save over the life of the loan depends on your personal finances. Talk with multiple lenders to see who offers the best deal for you.
A VA refinance involves replacing your existing mortgage with a new loan. If you’re planning to refinance your current VA loan, here’s what the process will look like.
#1. Determine which VA refinance best meets your needs.
You can choose between a VA Streamline Refinance and a VA cash-out refinance. Below we explore the requirements, benefits and guidelines for each.
Generally, a VA Streamline (IRRRL) is best if you want to lower your interest rate and monthly payment. But a VA cash-out refi might be better if you want to pull cash from your home equity or refinance a non-VA loan into a VA loan.
But if you have questions about which mortgage refinance is right for you, a lender who specializes in VA loans can help steer you in the right direction.
#2. Pre-qualify for a VA refinance loan.
A VA lender will be able to verify that you qualify for the VA refinance of your choice and help you get pre-qualified for the new loan.
If you’re applying for a VA Streamline refinance, you will not need a new Certificate of Eligibility (COE), credit check, or income review to pre-qualify. However, if you want a VA cash-out refinance, you will need to go through the full approval process.
Once you’re pre-approved, the lender can tell you what interest rate you qualify for on your new loan and you can decide whether to move forward with the refinance.
#3. Submit a full VA loan application.
Next, you’ll prepare a full refinance application. Your loan officer will also prepare a list of required documents and disclosures. The more responsive you are during this step in the process, the faster you may be able to close your refinance.
#4. Close your VA loan refinance and start saving.
Once you’ve submitted your VA refinance application, your mortgage lender will process and underwrite the loan (including order a VA appraisal, if necessary). Once approved, you’ll sign and close, and soon you’ll be receiving your new VA mortgage payment statements.Ready to refinance? Get a quote from a VA loan expert (Oct 26th, 2021)
The VA Streamline Refinance — also known as an Interest Rate Reduction Refinance Loan (IRRRL) — offers a quick and affordable way for veterans, active-duty service members and their families to reduce their mortgage rate and monthly payments.
A VA Streamline Refinance requires little documentation, which means it’s fast. Many times, you won’t even need a new property appraisal.
There’s also no credit check or income verification, and closing costs are low, too. Generally speaking, you’ll usually pay around 1 to 3% of your loan amount for your closing costs — often less if your lender lets you skip the appraisal.
Benefits of a VA Streamline Refinance
The VA Streamline Refinance program exists to help VA homeowners lower their interest rates without having to go through a complex and costly refinance process.
The benefits of a VA Streamline refinance include:
- Lower your mortgage rate. A VA Streamline Refinance allows you to lock in a lower mortgage interest rate.
- Reduce your monthly mortgage payment. A VA Streamline Refinance can also enable you to reduce your monthly payment.
- Avoid a credit check or appraisal. Save time and money by minimizing the documentation required to qualify for a VA Streamline Refinance.
- No out-of-pocket closing costs. Your closing costs can be financed into your loan amount and paid down over time.
- Lower refinance rates. VA Streamline Refinance rates are typically lower than for other refinance loan types.
- Quicker than other refinance options. VA Streamline Refinance loans are designed to close quickly — much faster than other types of refinances.
When should you choose a VA Streamline Refinance?
A VA Streamline Refinance is ideal for borrowers who already have a VA loan and are looking to quickly and affordably reduce their mortgage interest rate and monthly payments.
VA Streamline Refinance eligibility requirements 2021
To use a VA streamline refinance, you must:
- Have an existing VA loan
- Be current on your mortgage payments
- Have no more than one late payment in the last 12 months
- Certify that you either currently or previously lived in the home as your primary residence
- Meet the individual standards set by the lender (these may include certain debt-to-income ratios, credit scores, loan-to-value ratios, and more)
VA Streamline Refinance costs
VA Streamline Refinances come with closing costs, just as any refinance does. You can typically expect to pay about 2% to 3% of the total loan amount.
As with other VA loans, it’s possible to finance these closing costs into the total loan amount and pay them down over time, which means you won’t have to pay them out-of-pocket at closing.
How long does a VA Streamline Refinance take to close?
The time required to close a VA Streamline Refinance depends on your lender (and on how responsive you are as the borrower) but most close in less than 30 days.
Since these loans are VA-to-VA refinance and require very little documentation, they’re typically fairly fast to process.
How soon can you refinance with a VA Streamline Refinance?
As of 2018, the Protecting Veterans from Predatory Lending Act mandated a seasoning period of either 210 days from the date of the first payment or six monthly payments (whichever’s longer) before an existing VA loan becomes eligible for a VA Streamline Refinance.Check your eligibility for a VA Streamline Refinance here (Oct 26th, 2021)
The VA’s cash-out refinance program allows you to reduce your interest rate while withdrawing cash from the value of your home.
A VA cash-out refinance replaces your existing loan, rather than adding a second mortgage as a home equity loan would.
In addition, you can use the VA cash-out program to refinance an existing, non-VA loan (such as an FHA or conventional mortgage) into a VA loan. You are not required to take cash-out at closing.
Benefits of a VA cash-out refinance loan
One of the biggest benefits of this program — particularly compared to other cash-out refinancing options — is that many lenders allow you to take 100% of your equity stake in cash. (Most other loan programs limit you to 75% to 90%).
That’s cash back that you can use for any purpose. This might include college tuition, medical bills, home repairs, or just paying off high-interest credit cards or other debts.
That’s a big benefit but it’s not the only one.
Additional benefits of a VA cash-out refinance include:
- Eliminate mortgage insurance. As with other VA loans, a VA cash-out refinance doesn’t require private mortgage insurance (PMI). Refinancing into a VA loan can remove this monthly cost.
- No out-of-pocket closing costs. Your closing costs can be financed into your loan amount and paid down over time.
- Low VA funding fees. This one-time fee is between 2.3%-3.6% of the loan amount (unless exempt) for a VA cash-out refinance.
- Refinance any type of loan. Eligible military service members can use a VA cash-out refinance to pay off any type of home loan.
- Lower refinance rates. VA cash-out refinance rates are typically lower than for other refinance loan types.
When should you choose a VA cash-out refinance?
A VA cash-out refinance is ideal for eligible military service members who are seeking to convert their equity to cash, while also lowering their interest rate and monthly payment.
VA cash-out refinance eligibility requirements 2021
To be eligible for a VA cash-out refinance, you need to:
- Meet the VA’s service requirements
- Have a credit score of 620 or higher (some lenders may allow lower scores than this, though)
- Have a debt-to-income ratio of 41% or lower
- Occupy the home as your primary residence
You do not need a VA loan to use a VA cash-out. While you do need to meet the VA’s military service requirements, you can have a conventional mortgage, an FHA mortgage, or a VA mortgage to use this program.
VA cash-out refinance costs
VA cash-out refinances come with closing costs, just as any refinance does. You can typically expect to pay about 2% to 5% of the total loan amount.
As with other VA loans, it’s possible to finance these closing costs into the total loan amount and pay them down over time, which means you won’t have to pay the out-of-pocket at closing.
How long does a VA cash-out refinance take to close?
These loans also take a bit longer than the IRRRL refinance, as they require more stringent documentation and a new property appraisal. Most VA cash-out loans take 30 to 45 days to close.
How soon can you refinance with a VA cash-out refinance?
Seasoning periods vary by lender but most require a minimum of 210 days to elapse from the first monthly payment before becoming eligible for a VA cash-out refinance.Check your eligibility for a VA cash-out refinance here (Oct 26th, 2021)
VA cash-out vs VA Streamline Refinance
|VA Streamline Refinance||VA Cash-out Refinance|
|Can combine 1st and 2nd mortgage||No||Yes|
|Maximum LTV||No maximum/not verified||100% (in some cases)|
|Maximum loan amount||Current loan balance, plus closing costs||None|
|VA funding fee||0.50% (unless exempt)||2.3%-3.6% (unless exempt)|
|Late payments allowed (last 12 months)||1 (30 days)||0|
|Must be owner-occupied property||No||Yes|
Source: VA Handbook
How soon can you refinance a VA loan?
In most cases, you’ll need to wait at least seven months (210 days) from your closing date to refinance your VA loan. Some lenders may require longer than this, so be sure to shop around if you’re looking to refinance fairly quickly.
Does the VA allow cash-out refinances?
Yes, the VA has a specific cash-out refinance program. You can use the program regardless of whether your current loan is a VA mortgage or not. You do, however, need to meet the VA’s military service requirements.
Is a VA cash-out refinance a good idea?
That depends. For one, cash-out refinances often come with higher monthly payments, so you’ll need to make sure you can handle this increase comfortably before moving forward.
On top of this, the way you use your cash payment matters, too. Using it to pay off higher-interest debts or to cover value-adding home improvements will likely mean healthier finances down the line. Putting that cash toward a vacation or new car, though? That might not be the best move.
What’s the maximum LTV for a VA cash-out refinance?
The VA allows for up to a 100% loan-to-value ratio on cash-out refinances. However, individual lenders are free to set their own standards, and many have more stringent thresholds than this. Many times, you can expect to be capped at a 90% LTV. If you’re looking for 100% financing, be sure to shop around and get quotes from several VA lenders.
What is a Type 2 VA cash-out refinance?
A Type 2 VA cash-out refinance is the traditional refinance outlined above. You’d take out a new VA loan larger than the balance on your current mortgage. The VA loan would pay that loan off, and you’d get the difference between the two balances in cash.
How much are closing costs for a VA refinance?
Closing costs vary widely depending on where you’re located, your lender, and other details of your transaction. Generally speaking, though, you’ll pay between 1% and 5% of your loan amount. IRRRL refinances are typically much less than cash-out refinances because the funding fee is lower.
Can I get a VA cash-out refinance on an investment property?
No. VA cash-out refinances can only be used on primary residences. If you’re looking to refinance a property you plan to use for rental income or other purposes, you’ll need to use a VA IRRRL.
Can I get a VA refinance for an FHA loan?
If you have an FHA loan, you can use the VA Type 1 Cash-out Refinance to get a VA loan on your home. Keep in mind: You will still need to meet the VA’s military service requirements.
Why can’t I get a 100% VA cash-out refinance in Texas?
Cash-out refinancing is limited to an 80% loan-to-value ratio in Texas. So despite the VA’s 100% allowance, Texas law prevents borrowers from accessing a property’s full value in the state.
Are VA cash-out refinance rates lower than rates for other programs?
VA refinance rates are typically lower than rates on both conventional and FHA refinances. Cash-out refinances do come with higher rates than rate-and-term refinances, though. Additionally, your rate will be highly dependent on your creditworthiness and how risky you are as a borrower.
Can a VA cash-out refinance lower my mortgage payments?
It’s possible, but it depends on the rate you get (and the rate on your current loan), the amount of cash you’re taking out, your loan term, and other details. If your main goal is to lower your monthly payment, the VA IRRRL is your best bet.
How many times can you use the VA IRRRL?
You can use the VA IRRRL program as many times as you like. Just keep in mind the VA’s seven-month (210 days) waiting period.
Can you get cash out on a VA IRRRL?
No. If you’re looking to tap your home equity, you’ll need to use a VA cash-out refinance. These allow you to get a lump-sum cash payment after closing.
Can you remove a spouse with the VA IRRRL?
Yes, if you’ve divorced, your spouse has died, or there’s another reason you need to remove your spouse from the mortgage, a VA IRRRL loan can help you do it. Remember, you must have a VA loan to begin with to use this program.
What documentation is needed for the VA IRRRL?
VA IRRRLs are meant to be very quick, streamlined refinances, so you won’t need much documentation (including a new COE). In some cases, lenders may require employment verification or a credit check, but this varies from one company to the next.
How do I get my funding fee waived?
All VA loans come with funding fees, which help support the longevity and affordability of the VA loan program. In some cases, you may be able to have this fee waived. Only certain types of disabled veterans, Purple Heart recipients, and surviving spouses are eligible for this option, so talk to your lender if you think you might qualify.
Can I roll the funding fee into my mortgage?
Yes. VA loans do allow you to roll your funding fee and, many times, your closing costs into your mortgage loan. This allows you to pay them off over time, rather than all at once at closing. Keep in mind: It also means a higher loan amount, which creates a larger monthly payment and more long-term interest costs.
Can I use the VA Streamline Refinance for an investment property?
VA IRRRLs can be used on investment properties as long as they once acted as your primary residence. These are the only VA loans that allow for this.
Why are VA loans so good?
VA loans are great for a variety of reasons. They have low interest rates, they don’t require a down payment or mortgage insurance, and there’s no hard-and-fast credit requirement. If you’re considering a VA loan refinance, reach out to a VA lender today to learn more.Click here for a refinance quote from a VA loan expert (Oct 26th, 2021)