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There are several reasons why a homeowner may need or want to refinance their home loan but there are only three ways to refinance with a VA loan. Each refinancing option has benefits to individual home owner situations and unique positive aspects. If you are considering a Veterans Affair Home Loan refinance, then it is important to familiarize yourself with these three ways of refinancing and choose the one that is most beneficial to you.
- Cash-Out Refinance
Much like the name implies, a cash-out refinance is a refinancing option that gives homeowners immediate cash. You may need cash for bills, tuition or other reasons and this option gives you the money you need. Cash-out refinancing with a VA loan is also referred to as Home Equity Refinancing.
If a veteran has an existing VA loan, they may be able to use their home equity to refinance for up to 100% of their original loan, and get cash for the remaining amount. For example, if your original home loan was for $250,000 and you have paid off $15,000 of the loan, veteran homeowners can refinance for the original $250,000 loan and may receive $15,000 in cash back. This benefits a veteran who would like to pay only one loan instead of taking out another for large money items such as a car. The benefits of this type of refinance are that homeowners could get lower and fixed rates, cash back and have everything rolled into one clean loan.
It is important to remember that you are taking out a loan on your home’s equity, however, so the risks are similar to any other loan with an added loss of a decrease in your home’s equity.
- Interest Rate Reduction Refinancing
An Interest Rate Reduction Refinance Loan, commonly called an IRRRL or Streamline loan, is the most common of all VA refinance loan options. This option offers lower and fixed interest rates for home owners who already have a VA home loan and wish to have lower monthly payments, take advantage of lower rates or reduce the number of years on their loan.
This is the most common of the ways to refinance with a VA home loan because it is a streamlined process that requires minimal paper processing. Since the home owner has already been approved with their original VA home loan, this simple refinance requires minimum documentation and yields fast refinancing as well as having low fees due to less paperwork. Unlike the Cash-Out loan, an IRRRL does not give cash but can lower monthly mortgages with better and fixed rates to provide more money monthly for veteran families.
- Refinance of Conventional Loan to a Veterans Affairs Home Loan
Some veterans have a conventional home loan but can qualify for a VA home loan, meaning they can refinance to a Veterans Affairs home loan easily. A VA loan in this type of situation is treated like a Cash-Out refinance without the cash. An eligible veteran can roll their conventional home loan into a VA refinance for up to 100% of their loan and take advantage of lower and fixed interest rates through Veteran Affairs.
Refinance into a VA Home Loan
Each of these refinancing options carries benefits to individual home owner situations and each one has unique positive aspects that can improve veteran life and financial responsibility. With a Cash-Out option, homeowners can get cash fast and take advantage of lower interest rates instead of taking out a new loan. With a FHA Streamline refinance (IRRRL,) Homeowners can quickly reduce interest rates with minimal headache and changing from a conventional loan to a VA loan gives a veteran the opportunity to take full advantage of all the VA home loan benefits.
*Loan Subject to credit approval. Restrictions apply. Rates subject to change at any time.