Comparing VA Refinance Loans
At the time of this writing, VA loan rates are quite low and many who have existing VA or conventional loans are giving serious thought to their VA refinancing options even if they’ve already refinanced in the last five years or so.
There are two basic types of VA refinance options available–one is the cash-out option, the other is the VA Interest Rate Reduction Refinance Loan or IRRRL.
What are the major differences between these two types of refinance loans? Let’s examine what the Department of Veterans Affairs says about them and their features:
VA Loan Entitlement Issues For Refinance Loans
For VA IRRRLs, the veteran “re-uses the entitlement used on the existing VA loan – the IRRRL does not impact the amount of entitlement the veteran has in use”. This means there’s no need to apply for restored entitlement with an interest rate reduction refinance from the VA. Compare that to the VA cash-out refinance loan, which requires the borrower to have “sufficient available entitlement” but also stipulates, “if existing VA loan on the same property is being refinanced, entitlement can be restored for the refinance”.
VA Loan Fees And Charges For Refinance Loans
For VA IRRRLs, the rules state, “All allowable fees and charges, including up to two discount points, may be included in the loan”. When the borrower is applying for a cash-out refinance, “Allowable fees and charges and points may be paid from the loan proceeds”. Why are these two rules structured the way they are? Because of the rules governing cash back to the borrower.
VA Refinance Loan Rules On Cash Back To The Borrower
On VA Interest Rate Reduction Refinancing loans, no cash back is allowed, but for VA cash-out refinance loans, cash back is permitted. In such cases, the VA loan rules say “Borrower can receive cash for any purposes acceptable to the lender”.
VA Refinance Lien/Ownership Rules
In both types of refinance loans, the rules say the new loan “Must be secured by first lien”. The veteran must own the property. For IRRRLs, the VA official site says the new loan “Cannot refinance other liens” and that the IRRRL can only refinance the existing VA loan.” Cash-out refinancing can refinance any type of lien.
These are not the only differences between the two types of VA refinancing loans available, but they are some of the important ones. For more information speak with a loan officer or contact the VA directly at 1-800 827-1000.
Do you have questions about VA home loans? Ask us in the comments section.