Refinancing a VA loan is much like refinancing any other mortgage. However, VA loans do have a refinance option that conventional loans do not have. This option is referred to as a VA “streamline” and is a VA-to-VA refinance that requires very little documentation. No income check, no appraisal required and no need for verification of assets. Negative equity or “upside down” VA loans are eligible. As long as the borrower is refinancing an existing VA mortgage into a new one and is either lowering the interest rate or switching from a variable rate loan to a fixed, the streamline program is available. The program is better is known as the VA Streamline IRRRL (Interest Rate Reduction Refinance) This streamline options is geared towards borrowers that want to reduce their current interest rate /payment or want to change the term of their loan. Please note, there is NO cash out options allowed with the VA streamline refinance.
VA also has a cash out program available to homeowners that do have equity. VA allows for up to 100 percent of the current appraised value to be refinanced including cash out. However, most lenders will limit a VA cash out loan up to 90 percent of the appraised value. VA cash out loans require the lender to verify income, credit and employment. A VA cash-out loan is almost identical to a VA loan approval for a purchase transaction only there is no sales contract. Everything is documented and even some of the requirements upgraded a bit due to the additional risk associated with a cash-out loan, similar to how conventional cash out loans are treated. Homeowners can use the cash to pay down high interest revolving debt, home improvements, etc. The program will require a new VA funding fee that is added to the borrower’s new loan amount.
The borrowers will be asked to provide their most recent pay check stubs covering a 30 day period along with two most recent W2 forms. The lender may also contact the employer to verify current employment as well as an employment history. For self-employed borrowers they can expect to provide copies of their most recent federal income tax returns along with a newly created profit and loss statement (P&L) The lender will also pull a credit report for a VA cash out loan which is not always required for a streamline refinance. Credit scores will also be ordered and some lenders require a minimum credit core to be higher compared to the one used for a purchase. For a purchase loan the minimum score might be 620 while for a cash-out loan the score requirement might be 680.
A VA cash out loan should be discussed in detail as there are closing and funding fee costs. But if you’re thinking of refinancing to get a better rate, or want to pay off debt, a VA refinance something to consider.
Reach out to us today to learn more by calling ph: 904-385-3988 – we assist homeowners across the U.S.