Tips & Special Topics
VA Loans & The Importance of Your Home's Value
Added August 26, 2008 | Updated August 26, 2008
Whether you’re buying a new home, or refinancing an already existing mortgage, you have options as to the different mortgage programs available. A VA home loan program can be an excellent way for many discharged, retired, and active military personnel and reservists to acquire a mortgage loan with which to purchase a home. Borrowers can also utilize the VA loan programs to refinance their existing VA or conventional mortgages in order to receive cash at closing or to consolidate bills.
Whether it’s a new loan, or the refinance of an existing home loan, the value of the home being mortgaged is important to the transaction. For a new VA mortgage, the home’s value is key in determining how much the lender will be willing to lend on the property. In a refinance, your home’s value determines whether there is equity available to use for consolidating debts and receiving cash out.
Determining Value
Whether purchasing or refinancing, the process of determining the subject property’s value is the same. VA loan programs require that a VA-approved appraiser be used. The appraiser will generally compare the recent sales prices of other properties in the area that have similar characteristics in order to derive a value for the property being appraised. While the appraisal is generally ordered by the lender to help determine the value of the property, the borrower may also receive a copy of the appraiser’s report.
VA Loan Limits
VA home loans are government-guaranteed mortgages available to many discharged, retired, and active military personnel and reservists who qualify for a mortgage. The VA home loan program does have a limit on how much can be borrowed. The current limit is $417,000. That means that qualifying veterans and military personnel can borrow up to $417,000 with no down payment. It’s possible to purchase a higher-priced home with an out-of-pocket down payment that makes up the difference. This current cap is much greater than the national average for home prices.
VA Home Loan Refinance Options
Cash Out or Debt Consolidation
With a cash out refinance, or a refinance that includes debt consolidation, the value of your home is important because it determines whether you have enough equity in the home to be able to add to the mortgage balance. A cash out option allows a homeowner to use the equity from their home for any purpose, such as making home improvements, paying for college, or just taking a nice vacation. But any cash received from a VA refinance must be supported by an appraisal from a VA-approved appraiser showing that the amount of equity is sufficient to justify the new balance.
A VA home loan program may allow you to finance up to 100% of a home’s appraised value on a new purchase. On a VA refinance mortgage, the requirements are a bit more strict. Whether the mortgage being refinanced is an existing VA, a conventional, or an FHA mortgage, the new loan amount may not exceed 90% of the home’s appraised value. This percentage is commonly referred to as loan-to-value, or LTV.
A Lower Interest Rate
Current homeowners may choose to refinance their homes to get a lower interest rate with a VA home loan. Borrowers who currently hold a VA home loan may be able to utilize the VA Streamline Rate Reduction program to refinance to a lower rate without an appraisal. Of course, without an appraisal, the owner would not be eligible for cash out. For borrowers who do not have a VA loan and who desire to refinance an existing home loan into a VA loan with a lower interest rate, the home must first be appraised to determine the current value. As with a cash-out refinance, the new VA refinance loan may not exceed 90% of the current appraised value.
A VA home loan is a great benefit for current and former military personnel and reservists, and for many it is the very best option for purchasing or refinancing a home. Knowing the limits is important. When looking for a new home, it’s important for a veteran to get pre-qualified to determine a price range. With a maximum loan amount in mind, a future homeowner can shop with confidence in a market with home values in the correct range. And a homeowner with a recent VA home appraisal can have access to receiving cash from their equity with a VA refinance.
