If you already have a VA loan, you're 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’re 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’ll 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
- Be a surviving spouse of a veteran who lost their life in the line of duty
- 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
It's also important to keep in mind that eligibility and qualifying for a VA refinance are two different things. Being eligible doesn’t mean you automatically qualify 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’ll 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’re a surviving spouse, you may be eligible for your spouse’s VA home loan benefit if any of the following apply to your spouse:
- 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 financially from the transaction. 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, 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.
- A lower interest rate, if available
- No appraisal
- No monthly private mortgage insurance (PMI)
Another benefit of the IRRRL program is you don’t 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 haven’t used your VA benefit yet, your only option is the VA cash-out refinance. (We’ll discuss that in the next section.)
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’s 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 .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 it.
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 didn’t 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’s 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 doesn’t 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’re 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's 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’re a vet or member of the Reserves/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.