Refinancing Your VA Loan: What You Need to Know
If you're a veteran or active-duty service member with a VA loan, you may be considering refinancing. Refinancing can save you money on your monthly mortgage payment or help you shorten the term of your loan. Here's what you need to know about refinancing your VA loan.
Types of VA Refinance Loans
There are two main types of VA refinance loans: the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out Refinance.
The IRRRL allows you to refinance your current VA loan into a new loan with a lower interest rate. You can't receive any cash back with an IRRRL, but you can reduce your monthly mortgage payment.
The Cash-Out Refinance allows you to refinance your current VA loan into a new loan that pays off your current mortgage and gives you cash back. This type of refinance is a good option if you need money to make home repairs, pay off high-interest debt, or fund an education.
Qualifying for VA Refinance Loans
To qualify for a VA refinance loan, you must have a current VA loan and meet the lender's credit and income requirements. For an IRRRL, you must have made on-time payments on your current VA loan for at least six months.
For a Cash-Out Refinance, you'll need to have sufficient equity in your home. The VA allows you to borrow up to 100% of your home's value, but you'll need to have at least 20% equity to avoid paying private mortgage insurance.
The Benefits of Refinancing Your VA Loan
Refinancing your VA loan can provide several benefits, including:
- Lower monthly payments: If you refinance with a lower interest rate, you can reduce your monthly mortgage payment.
- Shorter loan term: Refinancing into a loan with a shorter term can help you pay off your mortgage faster and save you money on interest.
- Cash back: A Cash-Out Refinance can provide you with cash back to make home improvements or pay off high-interest debt.
- Fixed-rate mortgage: If you have an adjustable-rate mortgage, refinancing into a fixed-rate mortgage can give you peace of mind knowing that your payment won't change.
How to Refinance Your VA Loan
To refinance your VA loan, you'll need to follow these steps:
1. Shop around for lenders: Compare rates and fees from multiple lenders to find the best deal.
2. Apply for a refinance loan: Once you've found a lender you want to work with, submit a loan application.
3. Provide documentation: Your lender will require documentation, such as pay stubs, tax returns, and bank statements, to verify your income and assets.
4. Get an appraisal: Your lender will order an appraisal to determine the value of your home.
5. Close the loan: If you're approved for a refinance loan, you'll need to sign the loan documents and pay any closing costs.
Conclusion
Refinancing your VA loan can provide several benefits, such as lower monthly payments, shorter loan terms, and cash back. To qualify for a VA refinance loan, you must have a current VA loan and meet the lender's credit and income requirements. Shop around for lenders to find the best deal and follow the steps to refinance your loan.