If you weren’t eligible for a VA home loan when you initially bought your home, but you qualify now thanks to your military service, or even if you already have a VA loan but you want to reduce your monthly payments, it may be wise to think about refinancing into a VA home loan. Below are five critical considerations for you and your family before you dive into the process.
The eligibility requirements for a VA refinance are the very same as for a standard VA home loan. To qualify, you must have:
If you are interested in simply reducing your monthly mortgage payment and save money over the life of your mortgage, then the streamline refinance (also known as Interest Rate Reduction Refinance Loan, or IRRRL) is your best bet. The streamline refinance is only available to current VA loan holders, but if you qualify, it is incredibly simple and quick to get it started and you can start enjoying a lower monthly payment within a matter of weeks.
On the other hand, if you are interested in utilizing the equity in your home for any reason – whether you have an emergency, you want to pay off some debt, or you want to make some necessary repairs or upgrades around the house – a cash-out refinance is an excellent choice. This option is available to both VA and conventional home loan holders, but if you currently have a conventional mortgage, the process can be quite a bit lengthier than for VA loan holders.
When you refinance your mortgage through a VA loan, there will be closing costs and other fees just as there were when you initially bought your home. The good thing about VA loans is that you can choose to roll these costs into the balance of your loan and simply pay on them each month as you make your mortgage payments. However, if you can, it is wise to pay these costs upfront to avoid additional interest over time.
Sometimes it might seem as if you should refinance your home, but in some cases, it may not be the best idea. For example, you may not be able to reduce your interest rate enough to justify the process, closing costs, and fees, or you may find that it is best to utilize other funds for emergencies or home repairs and leave your home’s equity in place. If you are unsure of your best course of action, talk to a financial advisor to learn more. If you currently pay for PMI, which is significantly raising your payments, refinancing into a VA loan could be a tremendous help for your budget.
Understanding your current financial situation and the options that are available to you is critical, so be sure that you take the time to do this – or even talk to a financial advisor – before you start the refinance process. If you qualify for a lower interest rate, you could find yourself cutting your mortgage payment in half within a matter of weeks.