While many veterans are aware of the advantages that come with obtaining a Veterans Administration (VA) home loan for purchasing a house, they may not be aware that there are some advantages to refinancing through the VA, as well. There are several different refinancing options available, both of which may prove to be useful.
Increased Cash-Out Amounts
When a homeowner refinances his home through the VA, the refinance process involves paying off the original loan. When the homeowner refinances the house for an amount greater than the original mortgage, this is referred to as a cash-out loan. The borrower will pay off the original mortgage and have money left over, essentially getting cash for the equity she has in the home. The Veterans' Benefits Improvement Act of 2008 now allows veterans to refinance 100 percent of their homes' appraised value. Most commercial lenders will allow you to refinance only up to 80 percent for a cash-out loan.
Streamline Refinancing
For veterans who originally purchased their home with a VA loan, there is the streamline refinancing option, which is also referred to as an interest-rate reduction loan. When the interest rate drops to a lower amount than is currently being paid on the mortgage, VA homeowners can refinance at the lower interest rate with minimal expenses and may be able to complete the refinance process entirely without using any of their own money. To be eligible, the mortgage must be paid on time for the previous year, and no cash-back allowances are permitted.
No Mortgage Insurance
For homeowners who do not have a VA home loan but are eligible for one, refinancing to a VA home loan may be a money saver. A VA refinancing will save the borrower from having to obtain mortgage insurance, and the interest rate could very well be lower than he is currently paying, especially for those with fair to poor credit ratings. The one drawback is that there will be a 2.2 percent funding fee for refinancing through a VA loan, although this cost may be added to the loan amount, eliminating out-of-pocket- expenses.
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