VA Refinance Loan Options

If you are thinking of using your VA loan benefits, it’s important to know what refinance loan options are open to you. Some borrowers want to refinance out of conventional loans and into VA mortgages. Others want to refinance existing VA mortgages. There are a variety of options available to VA borrowers, including streamlined refinancing options that have no VA-required appraisal or credit check.

Conventional to VA refinancing is definitely an option for those who want to use VA refinance loans. It’s easy to assume that VA refinance loans are only for existing VA mortgages, but the VA loan program does allow the borrower to refinance the conventional mortgage into a VA loan. You can refinance from an adjustable rate loan to a fixed-rate VA mortgage, fixed-rate to fixed-rate, and borrowers do have the option of cash-out refinancing when switching from conventional to VA.

VA-to-VA cash out refinancing is also available. For all cash-out refinance loans, a new appraisal and credit check will be required, and borrowers will need to discuss closing cost options with the lender. You may be able to finance certain items such as a reasonable amount of discount points.

Cash-out refinancing requires the borrower and lender to work together to determine the amount of cash available at closing time. Your new appraisal will be instrumental in this process-the fair market value of your home at the time of the transaction will be an important factor.

VA refinance loan options also include a VA-to-VA Interest Rate Reduction Refinancing loan (VA IRRRL) option, where a borrower with an existing VA loan can apply to refinance into a lower interest rate, a lower mortgage payment, or both (depending on circumstances). The VA IRRRL option has no VA-required credit check or appraisal in most cases but your lender may required one or both depending on the policies of that financial institution.

A VA IRRRL has a set of requirements including no cash back to the borrower (except for legitimate refunds of items paid for up front but later financed into the loan), and a “tangible benefit” to the borrower such as a lower interest rate or mortgage payment. Refinancing into a fixed rate mortgage is considered a tangible benefit even if the new interest rate is higher than the original adjustable rate mortgage.

VA IRRRLs and VA Cash-Out Refinancing have the option to include something called a VA Energy Efficient Mortgage, which allows for additional funds in the loan intended for energy efficient upgrades to the property. We’ll discuss that option in a separate blog post.

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