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Refinancing Your VA Home Loan
Refinancing a mortgage loan is easier and more common today than ever, and this is true for both traditional loans and VA loans. There are many reasons why you might want to refinance, whether you need cash to pay off other debts, or just want to get a lower interest rate on your current loan.
The VA accommodates all of these needs by providing two different refinance plans: VA Cash-out Refinance Loan and Interest Rate Reduction Refinance Loan (IRRRL).
Cash Out Refinance VA Home Loan
A cash-out loan is great if you need money now. Whether you want to buy a new home, pay tuition, or consolidate your debts, the money is yours to do with as you like. If your house is your primary residence and you already have a VA loan, you can qualify to refinance up to 90% of the appraisal value. Just as with a traditional loan refinance, your new mortgage pays off the old debt on your house and the cash you receive is borrowed from the equity on your home.
IRRRLs were created for veterans who want to refinance their loan to obtain a lower interest rate but not take out any cash. This refinance plan is also called the VA Streamline loan because of the speed and simplicity with which the loan is issued. The loan requires no “out-of-pocket” expenses and very little documentation. The no cost feature allows you to either roll the fees into the new loan, or have the lender pay them and give you a higher interest rate. However, unless you are going from a VA ARM to a fixed rate, the interest rate must be lower that what you are currently paying. In terms of documentation, as long as the borrowers are still the same, there is no need for another appraisal, credit check, or other type of paperwork.
If you’re interested in refinancing your home, whether to receive cash or lower your monthly payments, now is a good time to do so while interest rates are still low. With your VA loan, no matter what type of repayment plan you’re on, you will be able to obtain a new mortgage with relative ease and no closing costs. Keep in mind however, that any lender may make you an IRRRL, but the terms can vary greatly so it’s a good idea to shop around and visit as many lenders as you can before settling on a lender.
How Does A VA Home Loan Work?
You may be eligible for a VA Home Loan if you meet one or more of the following conditions:
- You have served 90 consecutive days of active service during wartime,OR
- You have served 181 days of active service during peacetime,OR
- You have more than 6 years of service in the National Guard or Reserves,OR
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
How do i get proof of eligibility?
A VA approved lender can use an online program called ACE – the Automated Certificate of Eligibility – to get you started in the VA loan process. Unfortunately, the automated system won’t work for everyone. Some people don’t have enough information in the ACE database, and are required to fill out a VA Form 22-1880, commonly referred to as a Request for Certificate of Eligibility. If this applies to you, simply fill out the form and mail it to your regional Eligibility Center along with supporting paperwork including a copy of the DD-214 discharge paperwork.
Don’t send originals of the DD214, a photocopy will do. The certificate of eligibility process can be tricky for veterans who were separated from the military with a discharge other than honorable. In this case the VA must investigate the discharge to insure it was not classified as dishonorable. People who fall into this category should seek help from their local VA office, especially if you need to file an appeal to the results of your request of eligibility.
Frequently Asked Questions
Most frequent questions and answers
The VA loan can be used to buy a home (including townhouse or condominium unit in a VA-approved project), to build a home, to simultaneously purchase and improve a home, to improve a home by installing energy-related features, or to buy a manufactured home and/or lot.
On manufactured homes, there must be land included with the home and the home must be at least 24 feet wide. The manufactured home must have an identifiable tag. Most lenders are unwilling to offer VA loans for manufactured homes due to the increased risk these loans often carry.
Check with your lender about interest-rate reduction refinancing on your existing VA loan. This is a great advantage and there’s no need to re-establish VA loan eligibility. Instead, ask your lender to use the VA’s “email confirmation procedure”. You may also re-use your VA loan eligibility for another VA loan.
The requirement here includes having completed payments on the previous note, and you must no longer own the property. When applying for re-eligibility, include copies of the paperwork that proves your old VA loan has been paid off-a “paid-in-full” letter from your bank, or a copy of the “Closing Disclosure.”
The maximum amount the the VA will authorize a guarantee to your lender is 25% of the loan amount up to $121,000
The maximum VA home loan is $484,000.
The maximum guarantee in the states of HI and AK is 25 percent of the loan amount up to $169,912 . The maximum VA home loan in these states is $679,650.
The idea of buying a building intended as a rental property is sound, but VA mortgages aren’t intended for this purpose. If you buy a home with a VA home loan, you must certify that you intend to “personally” live in the house. There are naturally exceptions made for houses that are in the building stages when the sale is made, but the general rule is you must occupy the house within sixty days of the loan closing.
The occupancy requirement applies to all VA guaranteed loans except one: the Interest Rate Reduction Refinancing Loan or IRRRL. For these loans, the veteran is required to certify that the dwelling was previously occupied as the home.
Veterans who shop around will learn it’s possible to get a fixed rate loan, negotiated with the lender of your choice. Another option? The adjustable rate loan, where interest may be adjusted one percent annually, up to five percent over the duration of the loan period. Which to choose? No matter which way you think is best, do your homework, shop around and get the best rate possible. Some make the mistake of taking the first offer that sounds fair, but don’t be intimidated by the process. You may be eager to get the “hard part” over with and get into a home.
Take some time to research the biggest purchase of your life! When in doubt, consult an expert, a legal advisor or a trusted friend in the real estate business. The more research you do, the better you’ll feel at closing time. The VA is in the business of loan guaranty, but the choice of which loan to take is strictly up to you. It’s also a good idea to look for businesses who make a habit of cultivating customers who are veterans–you may find their expertise in VA matters quite valuable to reduce unnecessary waiting times on paperwork.
Refinance and Expert Home Loan Advice!
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