Section 2.3

Refinancing Your Home with a VA Loan

After you get a VA purchase loan, you can then eventually take advantage of future rate drops with a VA refinance. The VA loan program has two amazing refinance options: the VA IRRRL (or streamline) and the VA cash-out refinance. We're here to go over the details to help you decide which one is the right choice for your refinance.

We'll cover the details of each loan, including their similarities and the different benefits each one offers. That way, whenever it's time for you to one day refinance your VA loan, you'll have a better idea of which one might be the right choice for you.

Interest Rate Reduction Refinance Loans (IRRRLs)

The VA IRRRL is sometimes called the streamline loan because it is the quickest and simplest way to refinance a VA loan.

One of the reasons IRRRLs are so fast is that they require less paperwork than a cash-out refinance. Some of the documents you don't have to worry about include W2s and tax returns for income verification. We also don't need to verify your employment.

Another reason VA IRRRLs streamline the refinance process is that they don't require an appraisal. While these only add on about 10 days to a purchase loan, that's 10 days you don't have to worry about with an IRRRL.

 

Requirements for
VA IRRRLs

When it comes to getting an IRRRL, one of the basic requirements is that you must already have an existing VA loan. Basically, if you have any other loan type, you cannot refinance with a VA IRRRL.

Other requirements for a VA IRRRL include:

  • It must have been at least 210 days since the first due date of your current mortgage AND you must have made at least 6 consecutive monthly payments
  • You must be able to recoup all of your closing costs within 36 months
  • No disclosure of income or assets
  • The loan must meet at least one of the net tangible benefit (NTB) test criteria
 

Respectively, these are referred to as the seasoning requirements, the recoup rule, and the NTB test. While the first two are straightforward, you can learn more about the exact criteria of the NTB test by watching one of our other videos.

Benefits of the
VA IRRRL

In addition to the benefit of being an overall faster refinance option and not needing an appraisal, VA IRRRLs also have a lot of other benefits. These include:

  • Monthly savings on your mortgage payment
  • A lower interest rate that helps you save long-term
  • No out-of-pocket closing costs if you roll the closing costs into the loan
  • Not needing to currently live in the home as your primary residence
  • A lower funding fee than other types of VA loans

VA Cash-Out Refinance Loans

VA cash-out loans are so named because you can use one to take out cash from the equity of your home. This cash can be used for almost anything; some of the most common ways are to pay off high-interest debt, make home improvements, and cover your child's school tuition.

However, despite the name, getting cash out isn't the only way to use a VA cash-out refinance. If you don't currently have a VA home loan, but you want to enjoy all the extra perks the VA loan program has compared to other loan types, you can use a VA cash-out refi to do it.

Requirements for VA Cash-Out Refinances

Like VA IRRRLs, VA cash-out refinance loans have their own set of requirements. These include:

  • Getting a new VA appraisal to determine the current value of your home
  • Completing the same amount of paperwork as a regular VA purchase loan
  • Verifying your income and employment status
  • Meeting the lender's guidelines for debt-to-income
  • Having enough residual income
  • Living in the home as your current primary residence
 

VA cash-outs must also pass a net tangible benefit (NTB) test. However, the list of approved benefits is larger for a cash-out than it is for an IRRRL, which gives you more options and opportunities to pass. These are covered in the same video linked above.

Finally, some VA cash-out refis also have the same seasoning requirements as IRRRLs. However, these seasoning requirements only apply if you are refinancing an existing VA loan into a VA cash-out. If you are refinancing from a different loan program, like an FHA or conventional loan, then the seasoning may not apply.

Benefits of VA Cash-Out Refinances

Like we already mentioned, two of the main benefits of a VA cash-out loan are that you can use them to refinance from a non-VA loan into a VA loan and being able to get cash out to use however you like.

But these aren't the only benefits of a cash-out! Other pros can sometimes include:

  • Refinancing up to 100% of the loans value
  • Rolling in your closings costs†
  • Getting a lower interest rate
  • Saving on your monthly mortgage payments
  • More flexible NTB test requirements
 

And, if you're moving from a conventional, FHA, or USDA loan where you had to pay mortgage insurance, using a VA cash-out loan means you won't have to pay that extra money any more.

†You can only roll in your closing costs if the total loan amount, including those closing costs, stays at or below your home's appraised value.

How to Know Which VA Refinance Option to Choose

Both VA IRRRLs and VA cash-out refinance loans have benefits that work best for different situations.

For example, IRRRLs can only be used if you already have an existing VA loan. So, if you have some other loan type, then you know the VA cash-out refinance would be the better option.

If you already have a VA loan and can qualify for either type of VA refinance, then another way to tell which one might be better for you is to look at your goals. When you ask yourself why you want to refinance, you'll likely find that one of the refinance options will best fit your current needs.

So, keeping these needs in mind, an IRRRL will be the better choice if you don't really need any extra cash and you're simply looking to lower your rate and payment. Or it could even be the right choice if you want to move from an ARM to a fixed-rate mortgage before your rate starts adjusting to something potentially higher.

However, if you do need cash out because you want to go on an expensive vacation, make repairs, or consolidate your debt, then a cash-out refinance is the option you'll want to go with.

Still Can't Decide? Reach out for Help!

Since you've never even gotten a VA loan before, it can be hard to already start thinking about what kind of refinance you might one day want. And that's ok! We simply wanted to introduce you to all aspects of the VA loan program before you get started.

But, if you do ever find yourself in a position to refinance your home, and you're still, not sure what kind of refinance you should get, we're happy to answer all of your questions. Please feel free to give us a call or email our team, and we can guide you and help you determine which refinance option is right for you.

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