How Should I Refinance My VA Loan?
Updated: Sep 23, 2020
One of the ways our country is able to repay our debt to our military personnel – both active and former – is through the benefits provided by the Veterans Administration. These opportunities include purchasing or refinancing a home through VA loans, and more than 624,000 have taken advantage in 2019 alone.
Support During COVID-19
As it has for so many Americans, the COVID-19 pandemic has impacted our veterans and active military with mortgages. The CARES (Coronavirus Aid, Relief, and Economic Security) Act, signed into law in late March provided certain protections for borrowers with federally-backed loans, who are experiencing financial hardship due to the crisis.
On June 30 of this year, the Department of Veterans Affairs issued a circular to offer guidance on those protections. Included in the information, it assures that the VA won’t consider a veteran as a bad credit risk, based solely the borrower receiving any type of credit forbearance or deferred payment during the COVID-19 emergency.
Moreover, the circular addresses Rate Reduction Refinance Loans (IRRRL, also known as VA Streamline Refinance), stating that the VA waives certain approval requirements for delinquent loans under specific circumstances. There are also considerations for the lenders that may allow for more flexibility when working with military homeowners.
The IRRRL Facts
The VA Streamline Refinance program can be an optimal solution during the best of times, and perhaps more so during our current challenges. As with other refi objectives, an IRRRL is often used to reduce the homeowner’s interest rate and monthly payment, or to convert an adjustable rate mortgage (ARM) to a fixed rate loan. Interest rates remain enticing to borrowers, with most experts predicting them to stay historically low for the foreseeable future.
Because it is refinanced on an original VA loan, the biggest attraction of the IRRRL is the lack of hoops required to jump through. Benefits include:
• No new appraisal of the property is necessary.
• No credit underwriting package is required.
• Does not require a new certificate of eligibility.
• Primary residency isn’t necessary on a VA refinance so it can be used for home that was previously occupied by the borrower, but is now a vacation or income property.
• Refinance up to 100% of the home’s value.
• No requirement to purchase mortgage insurance.
Although you may not receive any cash out from the loan proceeds, it’s possible to include up to $6,000 in the loan dedicated to energy efficient home improvements, as long as the total refi doesn’t exceed the original loan amount.
What About Cash-Out?
While the IRRRL program doesn’t allow cash back on the loan, there is a separate refinance option for vets and military families – with either VA or conventional loans – who want to access the equity in their home. The qualifications are similar to original mortgage compliance, including a home appraisal, credit report and LTV (loan-to-value ratio.) These will vary by lender.
There are no restrictions on the use of the cash back from this loan, so it may be beneficial for needs such as debt consolidation, student loans, or financial emergencies.
Every veteran and service member’s situation is different – especially this year – so experts urge them to evaluate their own needs and get current rates and mortgage information from the VA or a reliable lender. Whether it’s achieving significant benefits with minimal paperwork via IRRRL or tapping into the home’s equity for much needed cash, EnTrust Funding (ETF) has the experience and knowledge to guide your financial decisions.
Contact us today to see if a VA refinance is right for you and your family.