Understanding Who Qualifies to Refinance a VA Loan

The U.S. Veterans Affairs Administration has helped provide home loans for veterans since 1944. The program allows both veterans and active duty service members to get affordable mortgages that the VA guarantees to be repaid to lenders. The program has been expanded to include refinancing these loans, and certain qualifications apply.

Use of VA Loan Eligibility

In order to qualify for a refinance loan through the VA, you must have used your eligibility for the initial home. In other words, it must be a VA loan to VA refinance. A new Certificate of Eligibility is not required. Your previous Certificate of Eligibility serves as proof of the use of your entitlement.

Loan Limits

VA refinance loans are subject to certain loan limits as defined by the program. These limits cap the amount of liability for repayment required by the program. Each county determines the amount of loan limit. Generally, lenders will approve up to four times the basic entitlement amount of $36,000 for a home loan, without a down payment.

Funding Fee

A funding fee is required for all those who apply for loans through the VA Guaranteed Loan Program. Payment of the fee is required at closing on the loan. You can either pay the funding fee in cash or roll it into the financing of the property. Funding fees can range from 0.5 percent to 3.3 percent. Funding fees for the second use of your eligibility are generally higher than the first use. Certain veterans with disabilities and surviving spouses are not required to pay a funding fee.

Interest Rate Reduction Refinance Loan

The program allows refinancing up to 100 percent of the home’s value. Although credit checks and new appraisals are not required under the program, lenders may impose these requirements under their own rules. Unlike a VA Purchase Loan, you do not have to certify that you will occupy the home. You must only certify that you have previously occupied it. The IRRRL program cannot be used to pay off a second mortgage. Generally, the second mortgage must be approved. Your current mortgage payments must be up to date, with no more than one 30-day late payment within the past year.

Cash-Out Refinance Loan

If you wish to take cash out of your home for medical costs, children’s college or home improvement costs, the VA offers a Cash-Out Refinancing Program that allows you to use your equity to finance these major expenses. The above qualifications apply similarly for these loans. You may also refinance as much as 100 percent of the value of the property. Unlike the IRRL loan, a credit report, income verification and property appraisal are required. You must also certify that you will occupy the home being refinanced.

Certain costs associated with refinancing can increase the cost of the loan to a greater amount than the fair market value of the property. These costs can include state and local taxes, discount points and other closing costs. Applicants for refinancing should always take these additional costs into account when determining if refinancing their VA loan is a favorable idea.

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