Because repayment is guaranteed by the VA, you can refinance up to 90%, or 100% in specific cases, of the value of your home without paying mortgage insurance. That is a huge advantage over conventional lending, which typically requires you to hold at least some equity in your house, and requires costly mortgage insurance if your equity is less than 20%.
The VA provides the following main types of refinancing loans, each with its own eligibility requirements.
Interest Rate Reduction Refinancing Loans (IRRRL)
Veterans who already have a VA mortgage can refinance up to the balance owed plus allowable expenses with an IRRRL, typically at a lower interest rate. These loans come with very low fees that can be wrapped into the loan. And the VA requires no extensive credit checks or property appraisals. An IRRRL loan is limited to refinancing first mortgages only. If you have a second loan on your house, you will need to discuss your options with a mortgage professional.
Intended for homeowners who currently have a VA loan along with some equity and/or a second mortgage, a VA cash-out refinance will generally let you borrow enough to pay off your existing mortgage and take some cash out as well. VA rules allow cash-out loans up to 90% of a home's value and up to 100% to pay off interim construction. The fees on VA cash-out loans are also higher than the fees on IRRRLs.
Conventional to VA conversions
If you currently have a conventional mortgage, you might be able to refinance into a VA loan with all of the advantages that can bring. As with standard VA loans, VA refinances are available to active-duty military, veterans, reservists and National Guard members, along with the spouses of military members who have died on active duty or from a service-connected disability. The fees on VA conversion loans are generally the same as fees on cash-outs, and the chief advantage is the same: You can typically borrow up to 90% of your home's value with no mortgage insurance fees required.
The US Department of Veterans Affairs(opens in a new tab) provides detailed information on benefits, eligibility and how to apply.
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Make sure you're refinancing at the best possible time by asking yourself a few questions.
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For comparison purposes, a 30-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 3.977% with 0.250 discount points and a $985 origination fee with a credit score of 740 would result in 360 equal payments of $940.47. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 12/5/19. Rates and programs may change at any time.
For comparison purposes, a 15-year fixed rate mortgage of $200,000 with a 20% down payment at an APR of 3.430% with 0.250 discount points and a $985 origination fee with a credit score of 740 would result 180 equal payments of $1,405.34. This payment does not include tax or insurance costs—the total payment obligation may be higher. This is a representative example based upon rates that were effective as of 12/5/19. Rates and programs may change at any time.
Rates and pricing may vary and are subject to change at any time without notice.
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Consumer Handbook on Adjustable-Rate Mortgages coming soon.
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