Introduction to VA Refinance Loans: IRRRL & Cash-Out Refinance Loans
VA Home Refinance Loans
Sometimes you require additional cash now, for a real need. Perhaps you need to pay college tuition, or perhaps it's time to make improvements that will increase the value of your home prior to sale. Maybe you just want to take advantage of lower interest rates so you can keep more of your hard-earned money in your own pocket.
It may be time to consider the many options available for refinancing your VA Home Loan.
Option 1: VA Loans for Home Equity Refinancing
Whether you need money to consolidate high interest credit card debt, pay for college tuition, buy a new car, or make home improvements to your home, your VA home loan benefits may be able to help.
A VA refinance transaction involves repayment of your current real estate debt from the proceeds of your new VA mortgage that has the same borrower(s) using the same property. This is called a "Cash-Out" Refinance.
Cash-Out Refinances are used for homes that are used as a principal residence by its owner. That owner can refinance in some cases up to 100 percent of the home’s appraised value plus allowable costs and fees. Homeowners who have sufficient equity in their homes may be able to take out cash beyond what they owe on their mortgage.
This VA refinance option is available to veterans who currently have a VA loan as well as to those who have other types of home financing. The Cash-Out option is how a veteran with a non-VA-loan can obtain a VA-backed mortgage. Credit and underwriting standards can vary by lender, and they’re typically more like a VA purchase loan when pursuing a Cash-Out refinance.
Option 2: VA Streamline Refinance
The VA has created a program called the Streamline Refinance to provide a way for current VA homeowners to lower their interest rate with little or no out-of-pocket costs. These loans can also be made faster and with less documentation than a typical loan.
An Interest Rate Reduction Refinance Loan (IRRRL) or Streamline Refinance allows you to refinance your current mortgage interest rate to a lower rate than you are currently paying (or to refinance from an adjustable-rate mortgage into a fixed-rate one). This is only available to veterans who are refinancing a VA mortgage.
"No Cost" Streamlines let you refinance your mortgage with no out-of-pocket expenses. One option is to let the lender pay the costs in exchange for a higher interest rate. Another option that lets you obtain market rates is to roll the closing costs into the new loan.
Unlike a Cash-Out refinance, veterans don’t need to intend to occupy the home to obtain a Streamline refinance. Prior occupancy is all that’s required for a Streamline. Some lenders may not require a credit score or appraisal in certain situations for veterans considering a VA Streamline. It’s best to check with lenders about their policies and requirements.