An Introduction to VA Refinance Loans: IRRRL & Cash-Out Refinance Loans
Everyone encounters the need for additional cash flow at some point or another. Maybe your car has broken down, or you need to pay college fees. Perhaps you’re looking to make some home improvements before you list your property for sale. Alternatively, you could be seeking an opportunity to cut your interest rates so that you can reduce your ongoing expenses.
Whatever the reason you’re looking for additional money, refinancing your VA Home Loan could represent a viable approach by which you can get your hands on some much-needed cash. Here is a list of the options that may be available to you:
OPTION 1: VA LOANS FOR HOME EQUITY REFINANCING
When you refinance your VA loan, you secure a new VA mortgage against the same property inhabited by the same people and subsequently use this to repay your current debt. This is referred to as “Cash-Out” refinancing.
To be eligible for this type of refinancing, the property against which you are securing the loan will need to be employed as a principal residence by its owner. In some situations, the owner can refinance a maximum of 100% of the appraised value of the property as well as any permitted fees and costs. If you have built up some equity in your home, you can then potentially take out the cash that is over and above anything you currently owe against the home loan.
This refinancing option is currently available to veterans who have an outstanding VA loan and individuals who have alternative forms of home financing. Veterans can also employ the Cash-Out option to update a non-VA loan to a VA-backed home loan. Although the underwriting and credit requirements can vary from lender to lender, the rules that apply to Cash-Out refinance tend to resemble those associated with VA loans.
OPTION 2: VA STREAMLINE REFINANCE
The VA Streamline Refinance program provides a method by which existing VA homeowners can reduce the interest rate they pay while minimizing and even eradicating any out-of-pocket costs. These loans are also typically quicker to secure and do not require as much paperwork as standard loans.
Veterans can apply for an Interest Rate Reduction Refinance Loan (IRRRL) or Streamline Refinance to refinance their current home loan and access a lower interest rate than that they are currently paying. Alternatively, they can use these provisions to change an adjustable-rate home loan for a fixed-rate mortgage.
Veterans can take advantage of “No Cost” Streamlines to refinance their existing home loan without incurring any additional out-of-pocket expenses. Veterans can obtain market rates by rolling the closing costs into the loan amount. Alternatively, the lender may agree to fund the loan costs as a means of accessing a higher interest rate.
Unlike Cash-Out refinancing, veterans don’t need to intend to occupy the property to be eligible for Streamline refinancing. However, they do need to have lived in the home at some point in the past. Some lenders will offer refinancing loans of this nature without requesting an appraisal or credit report. However, policies differ from lender to lender.