Benefits of Refinancing With a VA Mortgage

By Liz Clinger Updated on 7/31/2017

 
VA loans offer tremendous benefits to qualified military personnel. Many are unaware that the VA loan program also helps homeowners refinance their existing mortgages.

Refinancing a VA loan is a great option for many qualified homeowners, especially in the current real estate market. This is mainly because income and credit standards are less stringent with VA loans than with most conventional loans.

The VA home loan is a unique lending program, quite similar to government backed FHA loans. However, VA loans are specifically designed and available only to eligible members of the military: veterans, active members of the armed forces, and military spouses, including widows, provided they have not remarried. 

The loans are not written by the VA but by banks or mortgage companies. The VA insures these loans, giving a government guarantee to the loan which then allows the lending institution to assume less risk.

VA Refinancing Benefits

There are several advantages to a VA refinance loan. A couple of the major benefits is that VA allows you to finance up to 100% of the home's appraised value on a rate and term or cash out refinance. You will need to check with your lender since some will limit you to 95% or even 90% on a cash out loan. There are no monthly mortgage insurance payments ever. 

If you are currently in a VA loan and want to lower your rate and term, you may qualify for a VA streamline program (IRRRL) Interest Rate Reduction Refinance Loan.  You can refinance out of a conventional or FHA loan into a VA loan. 

Most conventional refinance loans would offer a much lower refinance limit, and no MIPs lower the total upfront cost. Other advantages include no prepayment penalties and more relaxed credit standards. 

It is much easier to qualify for refinancing with a VA loan than with more traditional refinancing, even if a borrower’s credit score is less than impeccable. The VA also offers assistance to veterans who are in default on their mortgage because of temporary financial trouble.

VA Funding Fee

All VA loans require a “funding fee.” The VA funding fee goes toward the management of the VA loan program; the fee allows the government to offer this service to veterans and their families. The VA funding fee also lessens the load for taxpayers regarding providing this military benefit to those who have served our country. The amount of the funding depends on: the loan type in which you are interested, your military status, your pay grade, whether or not you are a first-time buyer and an array of other factors. 

The funding fee is waived by the VA for disabled veterans and eligible surviving spouses. Depending on the loan amount the VA Funding Fee can be put on top of your loan amount, and this is what most VA borrowers do. However, you can also pay it as a one time fee at closing.

Below is a breakdown of how much the VA Funding Fee is charged depending on first-time or second-time use, down payment, veteran or reservist/national guard. 

 

First Time Use	Veteran	Reservist/National Guard
Downpayment:
Less than 5%	2.15%	2.40%
At least 5% but less than 10%	1.50%	1.75%
10% or more	1.25%	1.50%
Second and Subsequent Use	Veteran	Reservist/National Guard
Downpayment:
Less than 5%	3.30%	3.30%
At least 5% but less than 10%	1.50%	1.75%
10% or more	1.25%	1.50%
Refinancing Loans
Interest Rate Reduction  IRRRL	0.50%	0.50%

**Borrowers with a disability rating of at least 10% are exempt from paying the VA Funding Fee.

VA Closing Costs

There are some fees and closing costs that will be required by the lender when refinancing with a VA loan. These costs can include the mandated VA appraisal cost, a credit report, any applicable state or local taxes, title search, title insurance, any recording fees, discount points/pre-paid interest, a survey, and the loan origination fee. 

The loan origination fee is the amount the lender charges to originate your loan and is about 1% of the total loan amount. Your VA-approved lender will be able to let you know what costs you are responsible for, as these fees cannot be included in the loan itself. 

Commissions, brokerage fees, or buyer broker fees are not allowed to be levied in a VA loan.

The VA Works for You

If you are a U.S. military veteran or active duty service member, the Department of Veterans Affairs has a variety of benefits available for you, including opportunities for refinancing your current home loan. 

The VA will guarantee a portion of your loan for the mortgage company or bank, allowing you to get a great deal on rates and qualify easily. The appraisal of your home will be accomplished by a VA-approved appraiser, making sure to appraise its true value in the current market. Other perks of refinancing through the VA loan program include limited closing costs, no pre-payment penalties, and longer repayment or amortization terms. 

The VA loan program is committed to ensuring that all veterans have an equal opportunity to receive a VA refinancing loan regardless of race, color, religion, sex, handicap, familial status or national origin.