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How to refinance into a VA loan

Soldier in uniform coming home and his family
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Soldier in uniform coming home and his family
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Refinancing your current mortgage into a VA loan can be a smart move if you’re an active-duty member of the military, a veteran or an eligible spouse who qualifies. Fortunately, meeting the criteria to refinance your mortgage into a VA loan isn’t overly difficult provided you meet the military service requirement and lender criteria.

Who qualifies for a VA mortgage refinance?

Generally, you become eligible for a VA home loan once you have completed 90 days of active-duty military service during a named conflict, six years of service in the National Guard or Reserves or 181 consecutive days of active duty during times of peace. You might also be eligible for a VA loan if you are married to a service member who died in the line of duty or as a result of a service-related disability. You must have been honorably discharged to qualify, unless you meet certain exceptions.

In terms of additional VA requirements, VA home loans require a Certificate of Eligibility (COE) that proves your military service. You also have to agree to occupy the home as your primary residence.

From there, individual mortgage lenders set criteria that determine whether you qualify for a VA loan.

Generally speaking, you’ll need a credit score of at least 620 to be approved for a VA loan or a VA loan refinance with the exception of an Interest Rate Reduction Refinance Loan, or IRRRL, which doesn’t require underwriting. Borrowers also need to show sufficient income to repay their loans, although the guidelines for approval are generally easier to meet when compared with conventional mortgage loans.

What are the benefits of refinancing with a VA loan?

The benefits of refinancing your mortgage with a VA loan are plentiful, which is why VA home loans are so popular among those who can qualify. VA loans don’t require a down payment, whereas another government-backed loan, the FHA home loan, requires at least 3.5 percent down. However, you’ll still need to be prepared to pay refinance closing costs.

Here are the other key advantages of refinancing with a VA loan:

  • No mortgage insurance requirement: VA home loans do not require the borrower to pay mortgage insurance on top of the monthly mortgage payment, even with no down payment.
  • Minimal upfront costs: VA loans typically charge a funding fee that the borrower pays upfront, which can be wrapped into the closing costs when you refinance. (If you choose this option, you’ll be financing these costs, so you’ll pay more in interest.) You can avoid paying the funding fee altogether if you are living with a service-related disability and meet specific requirements, or if you are the surviving spouse of a veteran who died in service or from a disability resulting from military service.
  • Save on interest: VA home loan rates are generally competitive, and often lower than what you might qualify for with a conventional refinance. Run the numbers though to calculate potential savings — some homeowners actually pay more in interest when they refinance and reset the loan term, even with a reduced rate.
  • Flexible qualification criteria: The relaxed credit and income requirements on a VA loan make qualifying easier. (Note: The eligibility guidelines are more stringent for VA cash-out refinance loans).
  • No prepayment penalties: Like many other loans, with a VA loan, you can pay off your home early if you want without having to worry about added fees or “gotchas.”

Potential for a predictable monthly payment: If you’re currently in an adjustable-rate loan, you can switch to a VA fixed-rate mortgage to get a predictable monthly payment.

How to refinance into a VA loan

There are two main options available to you when you choose to refinance with a VA loan:

Interest Rate Reduction Refinance Loan (IRRRL)

The Interest Rate Reduction Refinance Loan, or IRRRL, can be used to refinance an existing VA loan into a new VA loan with a lower interest rate. This loan is available without an appraisal or any credit underwriting, and you can include all of your closing costs in your new loan product. The funding fee for this type of VA refinance loan may be lower than the fee for applying for a VA loan to purchase a property.

This loan can be a smart option if you can qualify for a lower interest rate because rates went down, and if you prefer to have a lower monthly payment. However, note that you cannot get cash out from your equity if you refinance your current VA loan with an IRRRL.

VA cash-out refinancing

A VA cash-out refinance loan allows current homeowners refinance their mortgage and take out some or all of their accrued equity. With this type of refinance, veterans could get their hands on cash they could use to pay off debt, make home improvements and more. If you’re considering this option, have a clear goal in mind for the funds, and be realistic about your own habits. If you intend to use the cash to pay off credit cards, for example, you’ll need to be sure you won’t accumulate an unmanageable balance again in the future.

This type of loan can be used to refinance an existing VA loan or a conventional mortgage, and the VA will guarantee loans worth up to 100 percent of the value of the home. Like other VA loans, this loan requires you to meet military service requirements and have a Certificate of Eligibility (COE) on hand.

Bottom line

If you currently have a VA loan or a conventional mortgage and want to refinance into a VA loan with better rates and terms, use a VA loan calculator to figure out how much your new mortgage payment might be. Also compare rates and terms across multiple lenders since loan providers ultimately set the rates and terms of these loans, and not the federal government.

A VA loan can help you save money with a lower interest rate, limited closing costs and no upfront requirement for a down payment. If you already have a VA loan you want to refinance, an IRRRL could even allow you to switch to a new VA loan without any underwriting requirements

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.
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