Refinancing Your Home if You’re a Veteran

Veterans have given so much to serve their country. That is why the Department of Veteran Affairs (VA) aims to serve them back! The VA provides benefit programs, healthcare services, financial opportunities, and more to veterans and their dependants. While the VA offers a variety of assistance options, some that can especially help veteran homeowners are the financial opportunities!

Understanding Types of Financial Assistance for Veterans

There are four popular financial assistance programs that the VA offers to veterans:

  • VA-Backed Purchase Loan

  • Native American Direct Loan (NADL) Program

  • VA-Backed Interest Rate Reduction Refinance Loan (IRRRL)

  • VA Cash-Out Refinance Loan

While every option in this list can help veterans, not each option can help in the same way. That is why it is important to understand some of the options available when it comes to looking at how you can improve your situation. One option may be better suited for your budget and lifestyle than another.

VA-Backed Purchase Loan

VA loans are a type of government-backed loan option that people can choose. A variety of lenders offer these loans with competitive interest rates. These loans can be used towards buying a home, improving a home, or building a home. Eligibility requirements for these loans state that the borrower must:

  • Qualify for a VA-backed home loan Certificate of Eligibility (COE).
  • Meet requirements set by the lender and the VA for credit score, income, and more.
  • Live and reside in the home that they use the loan funds towards.

This loan option has some impressive benefits to veterans. That is why many people tend to choose this as an option if they are eligible! Some benefits of this loan option may include:

  • No Down Payment Required
  • Lower Interest Rates
  • Better Loan Terms and Conditions
  • No Private Mortgage Insurance (PMI)  Requirement
  • Less Closing Costs
  • No Penalty Fee

It is important to remember that every financial situation and lender is different. You may not be able to reap all of the benefits from a purchase loan if your situation has factors that impact the outcome. Talk to your lender to make sure that you understand your VA purchase loan in-depth!

Native American Direct Loan (NADL) Program

This is a direct loan which means the lender is actually the Department of Veterans Affairs instead of a normal lender. Veterans that are Native American or have a spouse that is Native American may be able to qualify for the VA’s direct NADL program. This program can help recipients get a loan that can go towards buying a home, improving a home, or building a home on federal trust land. This loan could also be used to refinance an already existing NADL in order to get a lower interest rate. Some eligibility requirements for this VA loan program include:

  • Your tribal government’s agreement or Memorandum of Understanding (MOU)
  • A Valid VA home loan Certificate of Eligibility (COE)
  • Other eligibility requirements are met like credit score, income verification, etc.
  • Living in the home that they use the VA loan funds towards.

This loan option can be very beneficial to recipients! Some benefits that people may be able to get are:

  • No Down Payment Required
  • No Private Mortgage Insurance (PMI)
  • Stable Mortgage with Fixed Rates

Individuals interested in getting an NADL can contact their VA regional loan center for their state. From there the process can begin! If you need help finding the local regional loan center you can look them up on this website.

VA-Backed Interest Rate Reduction Refinance Loan (IRRRL)

Also referred to as a VA streamline refinance, this refinance loan can help you if you want to update your home loan (it basically acts like a version of a rate-and-term refinance but is actually a streamline refinance due to the relaxed eligibility criteria).

A mortgage refinance is when an individual can replace their current mortgage with a new one for the remaining balance of the original loan but has updated terms. Those that choose this refinance option may want to change their interest rate and upgrade their loan terms like repayment window or type of interest. People that can benefit from this loan option must:

  • Currently have a government-backed VA home loan.
  • Confirm that they live or used to live in a property that was covered by the loan.
  • Ensure the IRRRL will go towards refinancing the existing loan.

Many people can benefit from a VA streamline refinance because they can see an improvement in their financial situation whether from a reduced interest rate or updated loan terms. Individuals interested in getting an IRRRL need to find a lender in order to begin the refinance process. It is important to note that refinance has some hefty closing costs, so you want to make sure that the math makes sense when making a decision.

VA Cash-Out Refinance 

There are plenty of types of cash-out refinances. However the one that is important to veterans is a VA cash-out refinance. In this VA-backed refinance, you can replace your existing home loan with a new one that has different terms (similar to an IRRRL). Instead of the new loan replacing the existing home loan for the remaining balance of the original loan, it is for a higher amount. A higher amount can be offered due to the homeowner’s available home equity. That is why homeowners hoping to get cash out of their home choose a cash-out refinance. Eligibility requirements for these loans state that the borrower must:

  • Qualify for a VA-backed home loan Certificate of Eligibility (COE).
  • Meet requirements set by the lender and the VA for credit score, income, and more.
  • Live and reside in the home that they use the VA cash-out refinance funds towards.

Veterans that get cash out of their home equity from this type of refinance can use the funds towards their debt, cost of education, home improvements, etc. Even though a VA cash-out refinance can allow homeowners to tap into their home equity, there are big fees that come with it like closing costs, appraisal fees, and more. If you want to tap into your home equity, you may want to consider other options as well like a home equity loan, or a home equity line of credit (HELOC).

If you want to get a VA cash-out refinance you will need to find a lender in order to begin the process. Keep in mind, each lender is different so it is important to compare your options before you make a decision!

Alternatives to a Cash-Out Refinance

Homeowners that want to tap into their home equity may turn to a cash-out refinance in order to get the cash they need from their home. However there are other options besides a cash-out refinance that can provide the same opportunity. These include a home equity loan, and a home equity line of credit (HELOC).

Understanding Home Refinance for Veterans

Many veterans turn to a VA loan refinance when they want to reap the benefits that the VA offers while still accomplishing other financial goals. The two types of VA refinances are a cash-out refinance (VA cash-out refinance) and a streamline refinance (IRRRL). The VA offers refinance loans that can help veterans who want to save money and improve their financial situation. Service members, veterans, and surviving spouses are all eligible to reap the benefits of a refinance. These refinance loans are backed-by the government which means they will also likely have lower payments compared to conventional home refinances. Not every person is eligible to receive this loan program, so you want to see if you qualify before getting your hopes up!

Is It Better to Refinance with a VA Loan?

You need to look at the details of the refinance in order to determine whether or not a VA loan refinance would be best for you. However, some common benefits that veterans receive include:

  • Better Interest Rates
  • Reduced Monthly Payments
  • No Appraisal Fee (IRRRL)
  • No Credit Score Requirements (IRRRL)

Some of the benefits are only beneficial to IRRRL refinances (not a VA cash-out refinance) so make sure to not have high expectations for the wrong type of refinance!

Understanding VA Fees

Veterans can expect some fees, like a VA funding fee, that they will need to cover if they get a VA home loan. This VA funding fee is charged in order to help lower the cost of the loan for taxpayers in America. However, not every veteran is responsible for handling these fees. In fact, a veteran will not be obligated to handle these fees if they:

  • Receive funds from the VA due to a service-related disability
  • Are the surviving spouse of a veteran who passed away in service or from a service-related disability.
  • Become totally disabled due to a service-related injury.

There are many more instances where a person may not need to pay the VA funding fee. Make sure to see if you are able to avoid it with your lender or the VA! If you do have to pay this fee you can expect to pay it during the closing of your loan. The amount you pay depends on the type of loan you get and how much the loan costs. There are also other fees like closing costs that you will need to account for.

Closing Costs

Regardless of whether you choose a standard VA loan or a refinance, you will need to plan for some closing costs. Some of these costs can include:

  • Loan Origination Fee
  • VA Appraisal Fee
  • Credit Fees
  • Insurance Fees
  • Taxes
  • Recording Fees
  • Discount Points

Not every close will have these fees. However, you should plan to have to pay these so that they do not catch you by surprise. The closing costs can account for 3% to 5% of the loan amount. For example if the loan amount is $100,000 then the closing costs could be anywhere from $3,000 to $5,000 on average.

Who Qualifies for a VA Loan?

To be eligible for a VA loan, you or your spouse must meet the basic service requirements set by the VA, have a valid Certificate of Eligibility (COE) and satisfy the lender’s credit and income requirements. These requirements will vary by lender so it is important to properly prepare before beginning the process of getting (or replacing) a home loan.

How to Prepare for the VA Loan Process

Getting a VA loan requires some preparation in order to make the complex process as smooth as possible. When you properly prepare, you can go into the process with more information and more confidence! Some things that you can do to prepare are:

  • Go Over Your Credit Report
  • Get Your Certificate of Eligibility (COE)
  • Prepare Your Documentation

Go Over Your Credit Report

It is important to review your credit report for many reasons. In regards to a VA loan, it is especially important because it can provide you some insight when picking a lender. If a lender has a minimum credit score requirement, and you know your score doesn’t meet that, then you can avoid a hard inquiry application (which negatively impacts your credit).

It is also important to review your credit report because if you spot any errors then you can dispute them to get them dropped. This would remove any negative impact that those issues had on your score and improve your score overall! You can get a free credit report by visiting AnnualCreditReport.com. You should aim to review your report across the three main credit reporting bureaus.

Get Your Certificate of Eligibility (COE)

It is important to get your COE before you even begin the application process. You will need to get in touch with the VA in order to receive a copy of your COE. This form shows your lender how much entitlement you have as well as your eligibility for a VA loan. You can begin the process by logging onto https://vip.vba.va.gov and filling out the information. Make sure to have a VA profile created. If you have already begun the application process for a VA loan then you can get some help from your lender.

Prepare Your Documentation

Every lender is different so they may have their own documentation requirements. However, there are some documents that you can generally expect to be required from a majority of lenders. This documentation includes federal income tax returns, recent W-2 forms, and pay stubs.

How to Apply for a VA Loan

While it may seem complicated, the application process can be broken down into five easy steps:

  1. Find a VA-Approved Lender
  2. Pre-Qualify for Your Loan
  3. Find a Home You Want to Buy
  4. Begin the Application Process
  5. Close on Your Home

Step #1: Find a VA-Approved Lender

Not all lenders are created equal. Only specific lenders approved by the VA can originate a VA loan. Plus, you want to find a lender that caters to Veteran customers. There are more lenders that concentrate on VA loans than you may realize.

Step #2: Pre-Qualify for Your Loan

While this is an optional step, it is recommended because it could save you time and better prepare you so that you aren’t surprised when going through the process. If you want to prequalify for your loan, you can provide information to your potential lender about your income, employment status, credit history, marital status, etc. The more detailed, the better! This information can make the official underwriting process easier and provide you insight of the price of the home you can afford when house hunting.

Step #3: Find a Home You Want to Buy

House hunting can be fun because you get to envision your life in a bunch of different homes. Finding a house that fits your lifestyle and budget is key to longevity. It can help to get the help of a real estate agent that specializes with VA mortgages.  Once you find your dream home you will need to sign a purchase agreement!

Step #4: Begin the Application Process 

Now that you know the home you want to live in, and you know which lender you want to choose because you pre-qualified, you can officially begin the application process. One important component to this process is the appraisal. An appraiser will need to inspect the home in order to determine the value of the property (it doesn’t matter if you are getting a VA loan or a refinance).

Step #5: Close on Your Home

You can expect a majority of VA loans to close in less than 60 days (usually between 40 to 50 days). During closing you should anticipate some closing costs! Once you officially close on your home, you can move-in. If you are just refinancing, then the process is officially complete!

Overall

The VA understands that veterans have done a lot for their country. That is why they create financial opportunities like VA loans, and VA refinances to help them as much as possible. These opportunities include VA cash-out refinances, VA streamline refinances, and VA loans. Benefits to a VA loan include competitive interest rates, easier qualification standards, great financing opportunities, and financial independence; which is what makes them so popular amongst veterans. There may be some fees and closing costs that you need to account for when choosing this financial option. The process can be complex but with some proper preparation you can make it easier to handle. Take your time, research, and talk to professionals like a HUD-approved housing counselor or the VA if you need additional information or assistance!

Article References

https://www.benefits.va.gov/homeloans/contact_rlc_info.asp

https://www.veteransunited.com/education/homebuying/closing-costs/

https://www.veteransunited.com/realestate/how-long-does-it-take-to-close-a-va-loan/

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