VA Mortgage Loan Advice

Thank you for your question about U.S. Department of Veterans Affairs (VA) loans and if you can get a VA mortgage refinance.

A VA mortgage loan is a mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs. The VA loan is not offered directly by the VA; a VA loan is issued by VA-approved lenders.

The VA loan program was created to help American veterans or their surviving spouses to obtain mortgage financing. VA loan terms can be more liberal than standard financing. For instance, on purchase loans, VA loans can be obtained that require no down payment, whereas no down payment loans have all but disappeared for standard purchase loans.

VA loans do not require private mortgage insurance, so more of the borrower's monthly payment goes towards the actual mortgage payment. This means a borrower may be able to qualify for a larger VA loan amount than if he had to pay the private mortgage insurance.

On purchase loans, VA mortgage loans allow a borrower to borrow as much as 102.5% of the value of the home. On VA refinance mortgage loans, a borrower can borrow up to 90% of the value of the property.

VA Loan Eligibility

Not every veteran is eligible for a VA loan. In order to obtain a VA loan, the borrower needs to receive a Certificate of Eligibility from the VA. To be eligible for a Certificate of Eligibility for a VA mortgage loan, a veteran must have not received a dishonorable discharge. The length of time served is also an issue. Requirements vary depending on such factors as whether a veteran had active duty during wartime or peacetime and whether she or he was an officer or an enlisted soldier. Length of service requirements also vary for members who served with National Guard units. The VA Web site has a detailed description of eligibility requirements.

VA Streamline refinancing or IRRRL

If you already have a VA loan and are looking to refinance, the VA has a program that makes it easy to apply for a rate and term VA refinance. It is called a VA Streamline Refinance, a VA to VA loan, or, in the VA's terminology, an IRRRL (Interest Rate Reduction Refinancing Loan). Only the original VA loan can be paid off in a Streamlined Refinance; no second mortgage that has been taken on the property can be included in the loan.

IRRRLs often require very little paperwork, making it a loan that can be closed quickly. The VA does not require any appraisal of the property or any analysis of the borrower's credit worthiness. It can be the case that the lender itself will want an appraisal or to review the credit.

If you wish to refinance a fixed-interest-rate VA loan, your new VA loan must decrease your interest rate. If you are refinancing a VA guaranteed adjustable-rate mortgage (ARM), it is permissible for the interest rate to increase.

IRRRLs are available from any lender that chooses to participate in the VA lending program. The VA itself cautions borrowers to be wary of any organization that claims that it is the authorized provider for IRRRLs.

The VA also recommends that a borrower shop around, as the interest rate and closing costs can vary significantly from lender to lender. Almost all costs of the loan come from the lender. As the VA makes clear, the only cost they require is a funding fee of one-half of one percent of the loan amount. This cost can be paid by the borrower or in cash or included in the loan.

IRRRLs re-use the Certificate of Eligibility that you obtained to get your first VA loan. While you needed to be an occupant of the property when you originally took out your VA loan and obtained the VA Certificate of Eligibility, you can obtain an IRRRL when you are no longer living in the home.

The loan you apply for cannot be more than the payoff balance on your current VA loan plus the closing costs of your loan. Closing costs may include fees the lender charges to fund the loan and up to two discount points. (Each loan discount point generally costs 1% of the total loan amount. Paying this fee will lower your interest rate, usually by .125% or .25%. You can claim a discount points as a tax deduction, but only for the year in which they were paid). An IRRRL also allows you to borrow some additional money to fund energy efficiency improvements. These costs, too, can be rolled into the loan.

The costs of the loan, discount points (if selected), and energy improvements will increase the size of your loan. It could result in a situation where you owe more than the house is worth, making selling for enough to pay off your loan a big problem.

Some lenders steer borrowers to shorten the term of the loan, say from a 30-year loan to a 15-year loan. While a shorter loan will lead to overall lower interest costs over the course of the loan, it could raise the payment so high that the borrower cannot afford the payment. Be very careful that you do not set yourself up for an unaffordable payment.

VA cash-out loans

There are cash-out VA loans available that allow you to borrow from the equity in your property, whether to consolidate debt, pay for home improvements, or use money for some personal needs.

In a cash-out loan, you have to be a resident of the property and the property must be your principal residence. The loan has to use the same borrower(s) as the original loan.

VA cash-out loans allow for refinancing up to 90% of the appraised market value of the home, unless a state's restrictions allow only a lower limit, plus the closing costs for the loan.

Recommendation

I recommend that you shop around for the best loan that you can find. Start by visiting the Bills.com refinance savings center to get no-cost quotes from mortgage refinance providers.

If you are eligible for a VA loan, it still makes sense to shop around for the best deal. Interest rates and closing costs will vary from lender to lender. A VA loan may be the best choice, but if you qualify for a low interest conventional loan, see how the two compare. You may find that the funding fee that comes with the VA loan makes the loan more expensive than a conventional loan.

Keep in mind that you can contact the VA directly, asking questions or seeking information at the official VA Web site or you can speak with someone at the VA.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com