FAQ How Long Should a VA Refinance Take?

How Long do VA Refinance Loans Take?

 

This is one of those frequently-asked questions the applicant has more control over the answer than anyone else. How, you may ask? Because the single biggest variable that determines how long a loan takes to process is how quickly the borrower supplies the documents and information that the loan officer and underwriter need to move the loan forward. That being said, the “base time” that it is going to take is still very important and helpful for planning. Just know that your own responsiveness and cooperation will have the greatest effect in determining how long your loan takes to process. You can make it go much faster, or you can make it take longer. Quick tip: if you want to annoy your loan officer, take a long time getting documents and information to them, then complain about how long the loan is taking. the “base time” is going to be different depending on the refinance you are doing and what you are trying to accomplish.

How long will it take?

An uncomplicated IRRRL can be completed extremely quickly – in as little as 10 days in some cases. IRRRLs are meant to be very fast, however – that’s why they are called a streamline refinance option. Even an IRRRL can take a long time if the borrower does not provide the necessary information in a timely manner, however. On the lender’s side, the process is very quick and easy. IRRRLs can commonly take around 20 days, and a more complicated IRRRL that waits on information from the borrower can take up to 30 days. It is extremely odd for an IRRRL to take longer than 30 days. You can check with your lender about whether the loan will need to be sent to the VA for prior approval. Most IRRRLs do not (even if the lender you’re working with doesn’t have automatic authority), but some will, and having to send the loan application to the VA for prior approval can add a week to the time it takes to close.

 

A cash-out refinance has a lot of variation as to how long it might take. The general rule of thumb for a new purchase loan is 45 days. Refinances generally go somewhat faster, and 30 days is usually a safe bet. However, while a cash-out refinance won’t often be much quicker than 30 days, it can be a good deal longer – sometimes taking as long as 90 days. One major variable in how long a cash-out refinance can take is whether the lender you’re working with has automatic authority. Lenders can apply for automatic authority from the VA to approve most loans without first submitting them to the VA. Most lenders (especially those who specialize in VA loans) will have this authority, but some reputable VA-approved lenders may not. If a lender does not have automatic authority, they will have to send the refinance application to the VA for prior approval before they can close on the loan. As mentioned above, if a loan must be sent to the VA for prior approval, it can add a week to the loan processing time.

 

Loans with special circumstances may have to be sent to the VA for approval regardless of whether the lender has automatic authority. Your lender should advise you on whether your loan is one of those cases, but if you have a unique circumstance or situation, you may want to bring it up with your lender directly to find out if it will need to be sent to the VA. It’s not a big deal if it does, it simply adds some time to how long the loan will take to process. Chances are your situation will not be dramatically affected if the loan takes a week longer than you expected. If you are worried about it, simply start the loan process a few weeks earlier than you necessarily need to.

 

In summary, if you’re using an IRRRL, don’t expect it to be faster than 10 days, but it should most definitely be faster than 30 days. If you’re using a cash-out refinance, expect around 30 days, but remember it might be as long as 45 days even if you are prompt in providing your paperwork. The biggest variable you can control is how quickly you respond to your loan officer’s requests for documentation and information.

 

FAQ- What can a Refinance be used for?

What can a VA Refinance be Used for?

 

Perhaps a better question would be what can’t a VA refinance be used for? However, we’ll stick to the original question and hope that we can cover all of the uses for a VA refinance in just one article. The VA has several different refinance options depending on why you’re refinancing, which help to diversify the VA loan program and make it more able to accomplish a variety of different purposes. A refinance can be used to get a lower interest rate, change the type of interest rate you have, change your loan term, get cash-out on the equity you have on your home, make a large lump sum payment to lower the principal in the loan, and consolidate higher-interest rate debt.

 

If you’re wanting to get a lower interest rate than what you currently have, your best bet is to use the Interest Rate Reduction Refinance Loan (IRRRL), which is the VA’s streamline refinance option. The IRRRL is optimized for the purpose of getting a veteran a lower interest rate and monthly payment if at all possible. Lower interest rates can also be secured using a standard refinance, but can take longer, be more expensive, and be more complicated. Either an IRRRL or a standard refinance can be used to change the type of interest rate you have. The different types of interest rates are fixed-rate, adjustable-rate, and hybrid adjustable-rate. Most people prefer the sense of security that comes with a fixed-rate mortgage, but those who take on a hybrid adjustable-rate nearly always save money compared to their fixed-rate counterparts.

 

If you want to change your loan term, you can do so with any type of VA refinance, but you will be limited in the case of an IRRRL. On an IRRRL, your new term cannot be more than 10 years longer than the original term of the loan, not to exceed 30 years and 32 days, of course. Where this can become problematic is when you’re wanting to refinance a 15-year mortgage to a 30-year: can’t be done with an IRRRL. The longest term you can refinance a 15-year mortgage to with an IRRRL is 25 years. With a cash-out or cash-in refinance, there are no such restrictions; you can refinance a 15-year to a 30-year or vice versa with no problem.

 

If you’re wanting to get cash-out on your refinance, most likely you’ll need to go with the aptly named cash-out refinance. An IRRRL does allow for an Energy Efficiency Mortgage to be added on, but EEMs are tightly regulated such that they money gotten from one must be used specifically for pre-approved energy efficient improvements on the home. No more than $6,000 is available on an EEM. EEMs are also available on cash-out refinances, along with the ability to take advantage of the equity you have in your home for any purpose agreeable to the lender. You can pay off credit card debt, purchase a new car, make an improvement to your home, or pay for your children’s college. Anything you can convince your lender is a worthy cause is open to you.

What to do with a Refinance

 

Talking a little bit more about consolidating debt, we really want to emphasize how big of an advantage this is. Some credit cards (especially ones that have a past-due balance), can have extremely high interest rates compared to your mortgage – it’s not unheard of for borrowers to be being charged 20% interest on some of their credit card debt. Taking equity out of your home to pay off that high-interest debt will make paying off your home take longer, sure, but will save you potentially thousands of dollars in saved interest. You should remember that auto interest rates are even lower than mortgages right now, so paying off your car with the equity in your home may not actually save you money, though it will certainly make paying bills less complicated.
Lastly, you can take advantage of a cash-in refinance to pay off a major chunk of principal in your loan. You can always make more than the minimum monthly payment, sure, but if you use a cash-in refinance to make a large lump sum payment, you can also refinance to a shorter term while still having a lower monthly payment. This can save you money because the amount of interest you pay is calculated on how much principal you have left – so if you have less principal left you’ll be paying less interest. This in turn lowers your monthly payment, which enables you to pay off more principal each month if you keep paying the same amount you did before the refinance.

Expecting PCS Orders? What About Your VA Loan?

One of the trademark attributes of military service is getting new PCS orders. Sometimes PCS orders come at the best time, and sometimes they come at the worst time. Many active service members worry about getting a VA loan where they are currently stationed because they will likely only be there between two to three years. It’s true that military service members and their families move more than twice as much as civilian families do. So should anticipating PCS orders within the next few years stop you from getting a VA loan to purchase a home where you’re currently living? Hopefully the information we provide will help you make the best decision for your family.

vacation home

One of the biggest concerns facing service members considering getting a VA loan and to service members who have used their VA loan benefits and received PCS orders is having to scramble and rush to sell their current home in time to use their VA loan benefits in their new assigned post. This concern stems from correct knowledge that a VA borrower is only eligible to get a loan on the home they use as their primary residence, and that VA loans are typically restricted to one home at a time (it’s hard to use two different homes as ‘primary’ residences). However, there are certain special circumstances where a borrower can have two VA loans open at the same time. One of these circumstances is, you guessed it, when an active service member is needing to move to comply with PCS orders. The VA has this exception to the rule because they want service members to have full access to their benefits, but recognize that military life itself sometimes makes it difficult to do so.

One of the most beautiful things about this exception, is that it does not matter why the service member wants to keep the home. If they are moving because of PCS orders, the residency requirement is waived and the borrower can keep the house for whatever reason they see fit. Many service members use this as a way to earn rental income off their old house. More typically, the borrower may wish to wait until market conditions are better to list the house at a higher price, or to immediately list their house at a slightly higher price that might take more time to sell. Still others, especially those close to finishing their time in the military, might wish to keep the house because they’re planning on moving there after discharge. Remember, though, that just because VA rules don’t prevent a borrower from keeping their old home after PCS orders, that doesn’t mean there aren’t qualifications for a borrower to be able to use their VA loan benefits a second time.

In order to be able to use their VA benefits to purchase a new home at their new station, they need to have both sufficient entitlement and the ability to pay for both loans. For many young military families, those two conditions constitute an obstacle that is impossible to overcome. Since the VA has a rule that a borrower’s debt-to-income ratio cannot be higher than 41%, in order to handle two mortgages the borrower’s family would need very impressive income. Additionally, the borrower must have enough entitlement remaining in their VA loan account to cover the cost of the new home. This is not too much of a problem when talking about smaller, low-cost homes, but a borrower will likely not be able to use their VA loan for two sizable homes.

In short, a veteran’s full entitlement is $417,000 in most areas, though some higher-cost areas have higher limits. In other words, if a borrower buys a home for $200,000, then gets PCS orders to somewhere else, that borrower could potentially purchase another home for up to $217,000. If the service member is sent to a higher-cost area, that entitlement could increase. When opening a second VA loan, a borrower is subject to all of the same hoops to jump through as the first time; the borrower’s ability to pay the loan back is evaluated, as well as his or her credit and debt-to-income ratio, and a decision is made to determine whether the borrower can afford a second VA loan.

While it doesn’t work for every situation, it’s worth finding out if you could be taking advantages of the VA loan benefits program – both before and after your next PCS orders.

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.