Introduction to VA Refinance
VA loans are provided by private lenders to service members, veterans, and surviving spouses who meet Department of Veterans Affairs (VA) qualifying requirements. The VA guarantees a portion of these loans, enabling lenders to offer favorable terms to borrowers. VA loan benefits include competitive interest rates, a streamlined application process, and not having to pay expensive monthly mortgage insurance.
VA refinance loans take place under the auspices of the VA loan program. These are broken down into two different products: VA interest rate reduction refinance (IRRRL) loans and VA-backed cash-out refinance loans.
VA Refinance Loan Types
VA interest rate reduction refinance loan (IRRRL)
If you have an existing VA loan and you want to lower your interest rate or move from an adjustable interest rate to a fixed rate, then a VA IRRRL may be the right option for you.
You may be eligible for an IRRRL if you:
Already have a VA loan; and
Are using the IRRRL to refinance your existing VA loan; and
Meet the VA’s–and your lender’s–credit and income requirements; and
Currently live in or used to live in the home covered by the loan.
VA-backed cash-out refinance loan
If you want to take cash out of your home equity or want to refinance a non-VA loan into a VA-backed loan, then a VA-backed cash-out refinance may be the right option for you.
The “cash-out” part is applied when the new mortgage is greater in value than what you owe on the old loan, allowing you to cash out the difference. A VA-backed cash-out refinance can be used for paying off debt, paying tuition fees, making home improvements, or any other purpose.
You may be eligible for a VA-backed cash-out refinance loan if you:
Qualify for a VA-backed Certificate of Eligibility; and
Meet the VA’s–and your lender’s–credit and income requirements; and
Will live in the home you’re refinancing with the loan.
How to Get a VA Refinancing Loan
It takes four steps to get a VA refinance loan (or three if you’re applying for a VA IRRRL or you’re applying for a VA cash-out refinance and already have a Certificate of Eligibility).
1. Find a lender
VA refinancing loans are offered by private mortgage lenders such as banks, credit unions, and independent lenders. Interest rates, repayment terms, and lender fees can vary, so always compare multiple lenders before applying for pre-approval.
2. Apply for Certificate of Eligibility (COE)
If you’re applying for a VA-backed cash-out refinance loan and have never previously had a VA loan, then you’ll need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. If you already have a VA loan but can’t find your original COE, you can ask your lender to download it through the VA Home Loan program portal. A COE can be obtained from the
VA e-Benefits website
, by mail, or by filling out VA Form 26-1880. Some lenders offer free assistance with obtaining a COE.
You must meet one of the following conditions to obtain a COE:
Veteran who has served at least 90 consecutive days of active service in wartime or 181 days of active service in peacetime;
Member of the National Guard and Reserve who has served at least 6 years; or
Spouse of a veteran who died in the line of duty or as a consequence of a service-related injury.
3. Apply to your lender
In addition to your COE, you’ll need to give your lender any information they require in order to process your refinance application and ensure you meet their income and credit requirements. The minimum credit score for a VA refinance is usually 620, although some lenders have stricter credit requirements. The maximum loan-to-value ratio (your new loan amount divided by the value of your home) is 110% for a VA IRRRL and 100% for a VA-backed cash-out refinance; again, some lenders may have different conditions.
Your lender may require you to provide:
Social security number and other forms of identification (in order to for the lender to run a hard credit query)
Copies of paycheck stubs for the most recent 30-day period
W-2 forms for the previous two years
Copy of your federal income tax returns for the previous two years
Any other information your lender requires
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4. Close the refinancing loan and pay the VA funding fee
Most lenders take around 30-45 days to close a VA refinance (or any other loan or refinance, for that matter). You will need to pay a VA funding fee in addition to any other closing fees charged by your lender. This fee enables the federal government to take on the risk of allowing up to 110% CLTV for a VA refinance (or zero down payment for a VA purchase loan) and no monthly mortgage insurance. You can pay the VA funding at closing or include it in your loan and pay it off over time.
Funding fees for VA refinancing loans are as follows:
VA IRRRL – 0.5% of the loan amount
VA-backed cash-out refinancing loans – 2.3% for first use, 3.6% for second use or after
You won’t have to pay a VA funding fee if you are:
Receiving VA compensation for a service-connected disability; or
Eligible to receive VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead; or
The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and you're receiving Dependency and Indemnity Compensation;
A service member with a proposed or memorandum rating, before the loan closing date, saying you're eligible to get compensation because of a pre-discharge claim; or
A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart.
Comparing VA Refinance Loans
VA refinance loans are backed by the federal government’s Department of Veterans Affairs but provided by private lenders. Here are the top five things to look for when comparing VA refinance loan providers.
The monthly payments on a mortgage comprise principal, as in the amount remaining on your loan, and interest, as in the money the lender collects for providing the loan. Your APR, or annual percentage rate, consists of the interest rate plus other lender fees. The lower the interest rate / APR, the lower your monthly payments to the lender.
Like other mortgages, the typical VA refinance loan has a 15-30-year repayment term. There is no right or wrong when it comes to repayment terms; what’s best for you depends largely on how much you can afford to pay each month. The shorter the term, the higher your monthly payments but the less you’ll pay in interest over the life of the loan. The longer the term, the lower your monthly payments but the more you’ll pay your lender in the long run.
Closing costs are the fees and charges owed to the lender when the loan begins and usually range from 3-5% of the loan value. Closing costs for a VA refinance may include origination fees, property appraisal, title fees and insurance, state and local taxes, and various other costs – some of which go directly to the lender and some which the lender collects on behalf of third parties. The VA funding fee is a separate fee and isn’t impacted by the lender you choose.
Expertise in VA loans.
There are thousands of VA-authorized lenders but only a few-dozen issuing high enough volumes of VA loans to be able to call themselves experts. If a lender displays VA loans prominently on their website, has lots of positive online reviews from veterans, and offers help with obtaining a Certificate of Eligibility, these are all good indications of their expertise.
The best VA-authorized lenders show their commitment to service members and veterans through exceptional customer service. Some lenders even offer a 24-hour line with a toll-free international number, specifically to give service members deployed overseas a convenient way of applying for or enquiring about VA loans.