VA refinance

Comparing VA Refinance Loans

January 11, 2013

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.

 

4 Comments
  1. peter teresi

    i want to refinance my mortage and line of credit into one.how do i do this through the va directly or mortgage broker

    • Joe Wallace

      The Department of Veterans Affairs only guarantees the loan, it does not issue credit--you would need to work with a lender in order to refinance.

  2. Pat

    I currently have a conventionanl mortgage on property (land) of $328K @ 5.25%. We are finishing construction on the house that the county has assessed at over $900K. We would like to refinance with $152K cash out for a toal of $480K loan to cover the costs of construction. Does the VA loan have significant advantage over conventional loan in this case?

    • Joe Wallace

      The process of purchasing land and / or building a home can be challenging--if you are going through a builder, they will usually want to provide the financing for you with two loans. If not, we will briefly explain the process. You would have to go to an interim lender such as a bank or Credit union. They would need to give you a bridge loan for the land and / or new home construction which usually comes in stages. Once the home is built and all inspections complete, then you would get approved by a take out lender utilizing the VA program. At that time, you could utilize www.valoans.com or another lender for the take out loan. The lender pays off the bank or credit union that originally lent you the money and creates one new VA mortgage for the Veteran. Since the interim lender can originate loans and will want to make additional money on another loan, they will usually try to give you some added incentive in order for you to give them the take out loan. If this is the type of loan you want, we suggest you research what available options you have and make an informed decision. We would like the business. Thanks for the inquiry. VALoans.com Staff Web Address: www.VALoans.com America's Military Mortgage Lender

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