Whether you need to free up cash in your monthly budget or want to take advantage of sinking interest rates, veterans and active military service members have several options for refinancing VA loans. Special refinancing options can help VA loan holders take advantage of favorable market conditions.
The most popular way to refinance to drop your interest rate and monthly payment on a VA loan are through VA Streamline Loans.
Also known as a "VA to VA" loan or Interest Rate Reduction Refinancing Loan (IRRL), a VA Streamline Loan allows eligible borrowers to refinance their VA loan at a lower interest rate without paying the costs of an appraisal, credit report, or other fees associated with originating a new loan. Unless you are refinancing an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, your interest rate and monthly payment should go down.
Here's what you need to know about VA Streamline loans:
Borrowers who already have used their eligibility for a VA loan on the property that they want to refinance can apply for a VA Streamline Loan. You do not have to present your certificate of eligibility to the lender; lenders will accept the VA's email confirmation procedure for an interest-rate refinance instead.
What Are the Prerequisites?
There are no financial prerequisites, as the costs of originating the new loan can be worked into the loan. Refinancing to drop your interest rate and payment on a VA loan also does not require an appraisal, a credit report, a termite inspection, or income or employment verification as long as you have made your mortgage payments in full for the previous 12 months and you are up to date on payments at the time you refinance.
What Can I Use It For?
A VA Streamline Loan can only be used to pay off an existing VA loan. Borrowers cannot receive cash back, and the new loan cannot be used to pay off a second loan from a non-VA lender. If you do have a second mortgage, the holder of that mortgage must agree to subordinate the lien so that the refinanced VA loan will be the primary mortgage.
Borrowers can, however, include up to $6,000 into their refinanced loan to implement energy-efficient improvements in their home.
When Is a Good Time to Refinance?
Two situations typically trigger a refinance. First, when interest rates drop below the interest rate on your VA loan, it may be worthwhile to refinance to drop your interest rate and payment on a VA loan. Second, personal financial situations, whether you need additional money to pay monthly bills or to put toward an unexpected expense, also can precipitate refinancing.
Veterans and active service members can check current interest rates on LendingTree.com, which provides daily updates on interest rates for VA loans. Currently, rates are around 3 percent for VA loans, and mortgage rates across the board are around a three-year low. Some analysts say waiting for them to drop further could be risky.
Their advice? If a new loan could drop your monthly payment through a lower interest rate, now is the time to refinance your VA loan.
What Should I Be Aware of?
While the VA does not require an appraisal or credit underwriting package, some private lenders may require them. If you are in the market to refinance your VA loan through the VA Streamline Loan program, be sure to shop around and compare refinancing requirements of different lenders.
The key to a successful VA loan refinance is timing. Eligible borrowers who plan to stay in their home for a while should keep their eye on the market so that they can secure a low interest rate and drop their payments.