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Refinancing a VA loan: Your options and how to choose
If you’re eligible, a VA loan is hard to beat when it comes to favorable mortgage terms. VA loans often offer competitive rates, generally require no down payment, and don’t require PMI. That makes them very accessible to a wide range of financial situations.
TL;DR
- VA loans offer favorable mortgage terms, including competitive rates, no down payment, and no PMI.
- Two main VA refinance options exist: IRRRL for rate reduction/fixed loans and cash-out refinance for accessing home equity.
- IRRRLs simplify the refinance process, often avoiding appraisals and income verification, but have specific payment history requirements.
- VA cash-out refinances allow borrowing up to 100% of appraised value (lender caps may apply) for various needs, consolidating payments into one mortgage.
- Refinancing out of a VA loan is possible, especially with sufficient equity, to obtain better conventional loan terms.
- Refinancing into a VA loan can eliminate PMI on conventional or FHA mortgages for eligible borrowers.
- Costs include VA funding fees (varying percentages for IRRRL and cash-out, with potential exemptions) and closing costs (3-5% of loan amount).
- Calculating the break-even point is essential for standard refinances; IRRRLs are best when rates drop significantly or for switching from ARM to fixed.
- Common mistakes include not shopping around, focusing solely on monthly payments, forgetting funding-fee exemptions, and refinancing too soon.
- An appraisal is typically required for cash-out refinances but not usually for IRRRLs.
- There's no hard minimum credit score for VA loan refinances, but lenders may have their own requirements.
- IRRRLs typically close within a month, while cash-out refinances can take up to 60 days.