7 Elements You Need to Know Before Refinancing VA Loans

The IRRRL or Interest Rate Reduction Loan refinancing program is a great option for military people looking to decrease their mortgage’s interest rates. Not only the program requires minimum documentation, but also allows borrowers to pay less monthly payments and decrease their total loan term. However, in order to understand VA loans guidelines comprehensively, when it comes to refinancing, you need to first study a few elements. Here’s a brief mention of what you all need to know before refinancing your VA loan.

Interest Rate

The first condition in order to refinance a VA loan is that interest rate on the new loan must be lower than the existing loan’s interest rate. Ideally, this figure should be, at least, 1 percent lower than the interest rate you are already paying on your existing loan.

Cash Proceed and Home Equity

Refinancing a VA loan under the IRRRL scheme curtails you from utilizing any cash benefits, however, you may take a loan of up to $6000 for energy efficiency improvements. Given this, if your mortgage is $110,000, you cannot add on $40,000 for a remodeling project from the home’s equity.

Certificate of Eligibility

In order to apply for a VA loan, you need to first acquire a certificate of eligibility. This, however, is not the case when refinancing a VA loan under the IRRRL program. The reason, lenders can automatically receive confirmation about certificate of eligibility from the U.S. Department of Veterans Affairs.

Credit Check and Appraisal

Lenders may require everything from a home appraisal, debt-to-income ratio, income verification and credit check, when refinancing a VA loan. The U.S. Department of Veterans Affairs, however, does not require any such documents when refinancing a VA loan under the IRRRL program.

Availability of Refinance

Refinancing under the IRRRL program is only available for people who already have a VA loan. Given this, if you have a conventional or a FHA loan, you cannot refinance a VA loan under IRRRL to get low rate interest benefits.

No Upfront Fees

Though refinancing under the IRRRL accompanies a funding fee not more than 0.5 percent of your total loan amount, this can also be financed and added to the total loan balance. Consequently, borrowers are not required to pay any kind of upfront fee.

Refinance with any Lender

Contrary to common notion, it is not mandatory to refinance your VA loan from your existing lender. The VA guidelines do not restrict you from seeking a different lender to refinance your VA loan.

Conclusion

Refinancing your existing VA loan harvests many benefits that, include no down payment, no private mortgage insurance, and low rate of interest. To, however, get the most out of your refinanced loan, it is imperative to understand all the details and rules that govern this loan. In case of any doubts, it is always better to consult a professional loan officer, who can help you with everything you wish to know, and advise the best plan as per your specific needs.