Understanding VA Refinance Mortgages
VA Refinance Mortgages
One of the advantages of serving in the United States Military is the privilege of using the VA loan benefit. A VA refinance mortgage helps homeowners refinance their present mortgage loan so as to reduce their current interest rate, consolidate debt and/or eliminate mortgage insurance.
There are three main kinds of VA refinance loans that are usable in different situations: Cash-out, Rate-Term, and Interest Rate Reduction.
Cash-Out VA Refinance Mortgage
This type of loan is available to everyone, regardless of their present loan type, as long as they qualify on the basis of income eligibility, credit and military service. Currently, many lenders allow borrowers taking a military VA loan to cash out as much as 90% of their home equity. This money could be used for debt consolidation or simply to access additional cash for any use the homeowner chooses. Unlike credit card interest rates, the interest on a mortgage can be fixed, low and tax deductible.
Veterans who are eligible for VA Cash Out refinance may use the funds for home improvement. This can be done with the low interest rate available from a VA Home Loan. Furthermore, this VA mortgage, also known as the Energy Efficient Mortgage (EEM), provides cash for improving the home to make it more energy efficient.
Rate-Term VA Refinance Mortgage
The rate-term VA refinance mortgage enables homeowners to refinance as much as 100% of their home’s equity and capitalize on all the benefits offered by the program. With this loan, the homeowner will have access to fixed, low rates and will never required to pay mortgage insurance monthly. This mortgage can considerably lower monthly payments.
Interest Rate Reduction Refinance Loan (IRRRL)
This is a streamlined VA refinance mortgage which is only offered to homeowners who presently have a VA home loan. This type of refinance can be used to change the loan terms, obtain a lower interest rate, change from an adjustable interest rate to a fixed rate and change the current borrowers. When a borrower takes an IRRRL, no appraisal is required and there are no out-of-pocket costs. In addition, the loan offers convenience with less documentation requirements for asset information, employment and income information, as well as fast application processing.
Conventional vs VA Loan
VA loans have several distinct advantages over conventional loans.
Currently, banks usually ask for 10-20% down for conventional loans. Since a VA Loan has the backing of the federal government, banks don’t require a down payment, which makes VA Loans one of the few programs that can offer 100% financing.
Since the loan has the government’s backing, banks don’t require PMI (private mortgage insurance), an additional monthly expense for conventional loans, where borrowers finance over 80% of the home’s value. A VA borrower also enjoys competitive interest rates because the bank’s risk is offset by the government backing. Favorable rates, combined with no PMI, can significantly lower your monthly payment.
The qualification standards for each type of loan are very different. Because the loan has the government’s backing, banks assume less risk and have more lenient qualification standards for VA Loans, which makes them easier to obtain.
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