Tips & Special Topics
VA Home Loan Refinance Programs: What Options are Available?
Added October 28, 2008
Qualified active duty and former military personnel have a great advantage when it comes to refinancing their mortgages. VA home loan refinance programs offer options to them that are not available to other borrowers. A homeowner who qualifies for a VA home loan refinance can take a look at the options and assess, based on individual or family needs, how a VA home loan refinance can help household finances.
A VA home loan refinance allows qualified homeowners to pull equity out of their home in the form of cash, to consolidate debts into a low-interest mortgage, to switch to a lower interest rate mortgage, or to take money out for home improvements.
VA Streamline Refinance
If the goal is simply to reduce monthly overhead, an easy way for an active duty or former military serviceperson to refinance is through the VA streamline refinance option, also known as a rate-reduction mortgage. This type of refinance is available only for an already existing VA home loan – conventional mortgages are not eligible for this program. A VA streamline refinance is a simple refinance of a current mortgage into a new VA home loan with a lower interest rate, or a lower term. The income, employment, and credit documentation requirements are usually waived for a VA streamline refinance, making the process quick and easy. Some lenders offer this program with no out of pocket expenses for the borrower at closing as well. Little or no cash back is allowed with this type of VA home loan refinance.
VA Cash Out Refinance
The VA cash out refinance option allows a homeowner to use the equity built into a home for any purpose, such as purchasing a new automobile, paying for college, or just taking a nice vacation.
Even though a first time home buyer may finance up to 100% of a home’s value, a VA home loan refinance of a conventional or existing VA mortgage generally may not exceed 90% of the currently assessed home value. It’s important for a homeowner to consider the value of their home, and whether there is enough equity built up to receive cash out from this program. The documentation requirements for this full VA refinance program are similar to those of a new purchase.
VA Debt Consolidation
Similar to the cash out option, a homeowner who has enough equity in his or her home can refinance into a larger VA home loan in order to “consolidate,” or pay off other high-interest debts like auto loans and credit cards. Borrowers often do this to reduce their overall rate of interest, and to lower their monthly overhead. Often times a borrower may even be able to secure an interest rate on their first mortgage that is lower than their prior rate. The VA debt consolidation refinance option gives the borrower a way to lower the household’s monthly payments on multiple debts.
VA Loans for Home Improvement
Veterans who qualify for a VA cash out refinance often choose to use funds received at closing to make home improvements. Building an addition or simply making needed repairs can be done with a low interest rate obtained through a VA home loan refinance.
Energy Efficient VA Mortgage
The VA home loan refinance program also offers an Energy Efficient Mortgage (EEM) option that provides additional funds for any improvement that helps make the home more energy efficient. The improvements must result in cost savings over time, and must be documented by a Home Energy Rating System report. Funds up to $3,000, and in certain cases even up to $6,000, can be used to improve heating and cooling systems, or replace appliances like refrigerators, washers and dryers with Energy Star efficient appliances.
Other Government-Backed Options
While the VA home loan programs provide options to veterans and active-duty personnel that aren’t available to other borrowers, it can be advantageous to also take a look at other government-backed mortgage programs such as those offered through the Federal Housing Administration (FHA). In some situations, the FHA programs can offer advantages. For example, the FHA cash out refinance allows qualified homeowners to borrow up to 95% (or even higher in some cases) of their home’s value. And the streamline refinance option mentioned above is available for FHA loans.
The VA home loan refinance options are a great way for qualified individuals and families to ease their debt burden, make improvements on their home, or take out cash. When investigating these programs, a borrower should be certain to speak with a lender that has government approval and sufficient experience with the VA and FHA programs.
