VA Refinance: 3 Ways to Refinance a VA Loan

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The US Department of Veterans Affairs offers two options for refinancing your mortgage: Easy Refinance and Withdrawal Refinance. Both are more generous than many other home loans. You also have the option of refinancing yourself with a classic loan.

You may be able to refinance with a VA loan even if your income has gone down, your home has lost value, or if your current loan is not a VA loan.

Here’s what you need to know about refinancing a VA loan:

Reasons to refinance a VA loan

There are several reasons why you might want to refinance a VA loan, such as:

  • Get a lower interest rate. If interest rates have gone down or your credit has improved since you took out your loan, a VA refinance could lower your rate.
  • Switch from an adjustable rate to a fixed rate. Sometimes people take out adjustable rate mortgages because they can be cheaper in the first few years. Members of the military who move frequently may find these loans particularly attractive. However, if your rate has gone up or you prefer the stability of a fixed rate loan, a VA refinance can help.
  • Tap into the equity in your home. If you need to reduce high interest debt, pay for your education, or work on your home, a VA refinance loan may be a good option.

Learn more: How to refinance your mortgage in 6 easy steps

Options for refinancing a VA loan

There are three options for refinancing a VA loan:

  1. Will rationalize refinancing (IRRRL)
  2. Refinancing of VA collection
  3. Classic loan refinancing
Will rationalize refinancing (IRRRL)Refinancing of VA collectionClassic loan refinancing
GoalRefinance a VA Loan at a Lower Interest RateRefinance any type of mortgage; can also provide cash backRefinance any type of mortgage; avoid VA financing fees
EligibilityCurrent VA borrowerAnyone eligible for a VA loanNo VA requirement
Financing costs0.5%2.3% or 3.6%Nothing
Closing costsMay be less than usual depending on the lender; costs can be converted into a loanStandard
(can be converted into a loan subject to LTV requirements)
Standard
(can be converted into a loan subject to LTV requirements)
Credit and property underwritingNot generally requiredFull subscription requiredFull subscription required

Will rationalize refinancing (IRRRL)

A VA Simplified Refinance, also known as an Interest Rate Reduction Refinance Loan, or IRRRL, allows you to refinance regardless of your financial situation and the value of your home.

It can help you get a lower interest rate and a more affordable monthly payment. An IRRRL can be used even if the house is no longer your primary residence.

You can also use this loan to catch up on late payments and late fees, but if you are more than 30 days late, a credit subscription is required to show that you are able to pay off the new loan.

Advice: Some lenders require that you have no more than one late payment in the past 12 months to refinance.

Terms & Conditions

  • Must refinance an existing VA loan
  • You cannot extend the term of your current loan for more than 10 years
  • Must have lived in the house before

Advantages

  • Simple application without verification or income assessment in most cases
  • Closing costs may be lower if the lender does not require underwriting and valuation
  • Can be used for a second home or an investment house
  • May be able to refinance with negative home equity

The inconvenients

  • 0.5% VA financing fee
  • No withdrawal
  • Must pass subscription if your payment will increase by 20% or more

Advice: The VA Funding Fee does not apply if you are receiving VA compensation for a Service-Related Disability or if you have received the Purple Heart.

Refinancing of VA collection

A VA withdrawal refinance allows you to withdraw money from the equity in your home on either a VA or non-VA loan. You can also simply refinance a non-VA loan into a VA loan – even if you don’t want to withdraw funds – as long as you are eligible for a VA loan.

A VA withdrawal refinance is different from a conventional withdrawal refinance in that you don’t need that much home equity to qualify.

When you refinance cash with a conventional mortgage, you typically need to keep at least 20% of the equity in your home and can borrow up to 80% of the value of the home. A VA cash-out refinance allows you to borrow up to 100% of the value of your home.

Advice: A VA withdrawal refinance can also be a great way to stop paying FHA mortgage insurance premiums, USDA loan guarantee fees, or private mortgage insurance (PMI) on a conventional loan where you don’t have a lot of equity.

Terms & Conditions

  • Must have enough VA rights for the loan
  • Must occupy the house as a primary residence after closing
  • Must have sufficient credit and income to qualify

Advantages

  • Refinance a VA or non-VA loan
  • Refinance even if your mortgage is past due
  • Borrow up to 100% of the value of your home
  • Use money to refinance your debt, pay for your education, repair or improve your home

The inconvenients

  • Full subscription required
  • Full assessment required
  • 2.3% VA financing costs (first use); 3.6% finance charge (future use)
  • Lender’s requirements may be more stringent than VA requirements

To verify: Complete Mortgage Refinance Requirements Checklist

Classic loan refinancing

To avoid paying VA financing fees, you may want to refinance into a conventional loan. As long as you have at least 20% equity in your home, you won’t have to pay PMI.

Another reason you may want to refinance a conventional loan is to restore your entitlement to full VA. Then you can use a new VA loan to buy your next primary residence and the house you are refinancing as investment property.

Credible makes it easy to compare excellent refinance rates. In just three minutes, you can see the prequalified rates from all of our partner lenders. The rate check is free and will not affect your credit score.

Find out if refinancing is right for you
  • Real rates from several lenders – In 3 minutes, get real prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire creation process, from price comparison to closing, all on Credible.

Find my refi rate
Checking rates will not affect your credit

Terms & Conditions

  • Income must be high enough to cover monthly payments
  • The house must be worth more than what you borrow
  • Credit score must be at least 620

Advantages

  • Restore your right to the VA loan for another use
  • No VA financing fees
  • The property does not need to be owner occupied

The inconvenients

  • If the value of the property or your income has decreased, you may not be eligible
  • The interest rate may be slightly higher compared to a VA loan
  • PMI generally required if you don’t have at least 20% equity

Finding a mortgage can be time consuming. Fortunately, Credible streamlines this process and makes it easier to compare multiple lenders. You can see the prequalified rates from our partner lenders in the table below in just a few minutes.

Which VA Refinance Option Is Right For You?

When choosing a VA refinance option, think about what type of loan is best for your situation. In some cases, such as owing more than the value of your home or being unemployed, an IRRRL may be your only option.

If you have a choice, see which one offers the best rate and will save you the most money.

Refinancing optionBest for
Will rationalize refinancing (IRRRL)Current VA borrowers who want a lower interest rate or a shorter loan term without underwriting or evaluating
Refinancing of VA collectionHomeowners who want to leverage their home equity and / or refinance a non-VA loan
Conventional refinancingHomeowners with at least 20% equity and who want to avoid VA financing fees

About the Author

Amy Fontinelle

Amy Fontinelle is a mortgage and credit card authority and contributor to Credible. His work has been published in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, etc.

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