The home buying process can be confusing, but…
The “VA to VA Refinance”: 7 Things You Should Know
One of the most popular types of VA loans is called the “VA to VA refinance”. Here are seven quick things that every informed consumer should know.
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Otherwise, enjoy the list just below.
1. It goes by a lot of names. There are several different ways to refer to this type of loan. The most common are “VA to VA refinance”, “VA Streamline Refinance”, and “IRRRL”, which stands for “Interest Rate Reduction Refinance Loan”. Don’t let the terminology confuse you.
2. It is a VA-guaranteed loan made to refinance an existing VA loan. You need to have a VA loan already to qualify for this loan. You can’t use a VA to VA refinance to purchase a new home. These loans come generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan.
3. Generally, no appraisal, credit information or underwriting is required. Full-document underwriting is not required. We do not require pay-stubs, W-2 forms, or any other proof of income. The only requirements are a clean mortgage payment history for the last 12 months, a credit-score above 600, no outstanding collections accounts, and no bankruptcy filings in the last 2 years. The new loan will re-use the entitlement you originally used. A Certificate of Eligibility is not required. VAMortgage.com can verify your previous loan information by using the VA’s automated system.
4. A VA to VA Refinance may be done with “no money out of pocket”. Instead, all costs may be included into the new loan. The only cost required by VA is a funding fee of 1/2 percent of the new loan amount, which may be paid at closing or added to the new loan. Veterans entitled to VA disability compensation may be exempt from the funding fee. In addition, the only other expenses are title work which is required by all states and the establishment of an escrow account to pay your homeowner’s insurance and taxes.
5. They can be fixed rate or hybrid Adjustable Rate Mortgage (ARM). There is a good amount of flexibility in the structure of a VA Streamline Refinance loan.
6. A VA to VA Refinance must bear a lower interest rate than the loan it is refinancing. An exception to this would be if the loan it is refinancing is an ARM.
7. An IRRRL cannot be used to take equity out of the property or pay off debts. The only debt that can be paid with an IRRRL is that associated with the VA loan being refinanced. Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. Therefore, the general rule is that a borrower cannot receive cash proceeds from the loan. If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran.
Bonus: Extra Point!
8. There is one exception to #7. The one instance where you may be able to use a VA to VA refinance to get cash out is in the event that the cash is used for the cost of energy efficiency improvements up to $6,000.
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