Can You Refinance a VA Loan?

If you already have a Veterans Affairs (VA) loan, you are probably aware of the many benefits this type of loan provides. Even so, there might come a time when you may want to consider refinancing. Whether you want to reduce your monthly mortgage payments, or you are looking for an interest rate reduction, refinancing an existing VA-backed home loan can provide many of the same benefits as a conventional loan refinance.

In this article, you will learn who is eligible, what your options are, and how a VA loan refinance may be beneficial for you.

Who is eligible for a VA refinance?

Minimum VA requirements

To be eligible for any VA home loan benefits, qualifications include:

• Served at least 90 days during wartime.
• Served at least 180 days during peacetime.
• Have any discharge except dishonorable.
• A surviving spouse of a veteran or the spouse of a veteran who is missing in action or being held as a prisoner of war (POW) may also qualify.
• Served in the Reserves or National Guard for at least six years.
• Have a current VA loan if you want to use the VA IRRRL (Interest Rate Reduction Refinance Loan) program.

Keep in mind that eligibility does not automatically qualify you for the loan. You must prove you meet the minimum requirements to afford the loan, meet the lender’s credit score requirements, and have manageable debts.

Those who qualify under one of the above requirements will be able to obtain their VA certificate of eligibility (COE). A COE is what shows lenders you are eligible for veteran benefits. To get your COE, you will need your discharge papers or statement of service. With this information, you can apply for your COE using the VA’s web portal, or you can apply by mail.

VA surviving spouse requirements

If you are a surviving spouse, you may be eligible for your spouse’s VA home loan benefit if any of the following apply to your spouse:

• POW
• Missing in action
• Died while in service or because of an injury caused in the service
• Was totally disabled and died, but not necessarily from the disability

For surviving spouses, you can use these instructions to apply for the COE. It is important to note though, that once you are remarried you cannot use your deceased spouse’s home loan benefits.

VA refinance requirements

In addition to meeting the minimum VA home loan requirements, borrowers wishing to refinance a VA loan must prove net tangible benefit and meet VA seasoning requirements.

Net tangible benefit

VA borrowers who would like to refinance their VA loan must provide tangible proof that refinancing will benefit them financially. A few examples include:

• Shortened loan term
• Refinancing from an ARM loan to a fixed-rate
• Eliminate mortgage insurance
• Lower interest rate
• Reduced monthly payment
• The new loan is 90% or less of the value of your home

Depending on your lender, you also may not need to verify your credit score, income, assets, or home value. The lender might use your qualifying factors from the original loan to qualify you.

How soon can you refinance a VA home loan?

To refinance a VA loan, there are seasoning requirements, or waiting periods, which protect veterans from predatory lending tactics. VA loans must be seasoned.  For an interest rate reduction refinance loan (IRRRL), you must wait until 210 days after the first payment due date. For a VA Cash-Out Refinance, the waiting period is 210 days after the first payment is made on the loan being refinanced. Both also require that six consecutive payments have been made on the loan you wish to refinance.

What are the different VA loan refinancing options?

There are two main types of refinance options VA loan borrowers can choose from if they meet the requirements:

1. Interest Rate Reduction Refinance Loan (IRRRL)

This option is also known as a VA Streamline refinance. For the most part, using an IRRRL can reduce your interest rate and save you money over the life of the loan.

IRRRL benefits

• A lower interest rate, if available
• No appraisal
• No monthly private mortgage insurance (PMI)

Another benefit of the IRRRL program is you do not have to live in the property as your primary residence after refinancing if you can prove you lived there full time previously. Some borrowers use this option to buy another home with their remaining VA benefit while keeping the current VA loan on their first home.

It’s important to note that there are different requirements you must meet depending on the type of refinance option you choose. For instance, in the case of the VA IRRRL, you must be refinancing an existing VA loan. If you have not used your VA benefit yet, your only option is the VA cash-out refinance. (We’ll discuss that in the next section.)

IRRRL requirements

If you currently have a VA-backed loan, you may be eligible for an IRRRL if you meet the following requirements:

• You can prove there is a net tangible benefit to refinance
• You have an on-time payment history on your current VA loan for the last 12 months
• You can prove you lived in the home with a VA loan as your primary residence (or currently live there)

There may be a funding fee when refinancing an IRRRL, and for most borrowers, the fee for an IRRRL is 0.5% of your loan amount. You may qualify for a funding fee exemption.

2. VA Cash-Out Refinance

The other option for VA refinancing is a VA cash-out refinance and has the most lenient requirements. When using this type of refinancing, a borrower can tap into the equity in their home and use it as cash. Unlike most loan programs, though, you can borrow up to 100% of the home’s value if you prove you can afford to pay it back.

VA Cash-out benefits

• Refinance a construction loan to VA loan
• Refinance an existing loan to take advantage of cash equity
• Refinance a non-VA loan to a VA loan

VA Cash-out requirements

Veterans who did not use their VA home loan benefits initially often turn to the VA cash-out refinance to tap into their home’s equity because of the simpler requirements and the ability to use up to 100% of the home’s equity. However, you have to be living in the home. You may also need to provide additional information to your lender for a VA cash-out refinance such as pay stubs, tax returns, and more. You will also need to qualify for a Certificate of Eligibility (COE). 

Can you refinance from a conventional or FHA loan to a VA loan?

Borrowers with an FHA or conventional mortgage may be eligible for a VA cash-out refinance if they otherwise qualify and have VA loan entitlement. However, IRRRL loans require an existing VA loan.

Can you refinance from a VA loan to conventional or FHA?

It is worth mentioning that it is possible to refinance your VA loan to a conventional or FHA loan. Whether this is an option that is right for you depends on your unique situation.

A few reasons you may want to consider switching to a conventional or FHA loan include:

• Wanting to invest in a rental property, as you cannot use a VA loan for an investment property that does not qualify for an IRRRL.
• Having stellar credit and desiring better terms, such as a better interest rate, lower monthly payments, or shorter loan term.

Is a VA refinance a good option?

If you are eligible for a VA refinance, it can be one of the best ways to make the most of the investment in your home. Whether you use the program to lower your interest rate and save money, or tap into your home’s equity and slightly increase your loan amount, VA loans have many benefits. Before you begin to think about refinancing, it is really important to understand what your goals with refinancing are. Review your loan interest rates compared to the current available rates you can qualify for to determine the financial benefits.

A VA loan can be an attractive option if you are a vet or member of the Reserves or National Guard. The loan typically has low-interest rates and fees making it easier to afford a refinance loan and make the most of the investment in your home.