Skip to Content
Lesson 10.5

VA Refinance Options

 
Chris Birk | Author of "The Book on VA Loans"

VA Streamline (IRRRL)

The VA Streamline refinance is one of the most powerful refinance options for homeowners who already have a VA Loan. You'll also hear this called an Interest Rate Reduction Refinance Loan, or an IRRRL. Current VA loan holders can use a VA Streamline to refinance into a lower mortgage rate or out of an adjustable-rate mortgage and into a fixed-rate loan.

Streamline refinance loans typically require little paperwork and often require little-to-no costs out of pocket. Streamline borrowers can roll closing costs into their overall loan amount. In some cases, VA Streamline borrowers won't need an appraisal or even to meet a credit score benchmark. Requirements will vary depending on the lender and your specific situation.

Previous occupancy is all that's required for a VA Streamline, meaning you can look to refinance a mortgaged property you no longer live in. That's a great option for borrowers renting out a home at a previous duty station, for example.

You may need to have been paying on your current loan for at least six months before pursuing a VA Streamline. Also, homeowners who have made a late payment on their loan at any point in the last 12 months may run into problems. Policies and requirements can vary by lender.

Homeowners seeking a VA Streamline will have to again pay the VA Funding Fee. The good news is this time, it’s just half a percent of the loan amount. For example, the funding fee on a typical $200,000 loan would be $1,000. Veterans and service members who receive compensation for a service-connected disability don’t pay this fee.

One thing you can't do with a VA Streamline is take out cash from your home's equity. But don't worry — there's a VA refinance option for that, too.

  • A Refinance Could Save You Money

VA Cash-Out Refinance

The VA's Cash-Out refinance loan gives qualified veterans the opportunity to refinance their conventional or VA loan into a lower rate and extract cash from the home's equity.

This shouldn't be confused with a home equity loan, which is a second loan that runs alongside your current loan. The VA Cash-Out refinance loan replaces your existing mortgage instead of complementing it.

Qualified homeowners may be able to refinance up to 100 percent of their home's value in some cases. There may be limits depending on the loan amount or how much cash you want back. For example, homeowners looking to take out more than $50,000 may need to have a loan-to-value ratio of 90 percent or lower. There may also be cash back limits for jumbo refinance loans. Requirements and guidelines can vary by lender.

You can use this cash to pay down debt, make home improvements or cover other needs. You’ll also use a Cash-Out refinance if you’re looking to refinance your current conventional, FHA or USDA loan into a VA-backed loan. You're not required to take out any cash in these cases— this is just the path you'll take to get a non-VA loan into the VA loan program.

The process for obtaining a Cash-Out refinance is similar to the process borrowers go through for a VA purchase loan. That means you'll need to meet a lender's credit and income requirements, have a satisfactory appraisal and meet other benchmarks. You'll also need to intend to occupy the home as your primary residence.

Homeowners will need to have a mortgage on the property in order to pursue a VA Cash-Out refinance. You wouldn't be able to land one once you've repaid a home loan in full.

Homeowners pay a higher VA Funding Fee on a Cash-Out refinance compared to a VA Streamline refinance. If it’s the first time you’re using your VA loan benefits, you’ll pay 2.15 percent. But if you’ve had a VA loan before, the fee jumps to 3.3 percent. Again, this isn’t cash you need at closing. Borrowers can finance this fee at closing.

The VA’s two refinance options can be a great fit for current VA mortgage holders or non-VA homeowners looking to tap into this historic program’s benefits. Talk with a lender in more detail about whether a refinance makes good financial sense given your goals and your specific situation.