Many home owners are confused about VA refinance loans and that is why we are happy to provide this comprehensive guide to help you find out valuable information to help in your refinancing choices. There are two types of refinancing loans available for VA mortgages and each one has its own set of benefits to homeowners. But to first understand refinance loans, it is important to understand the reasons why veterans and VA home owners choose to refinance.
Reasons to Refinance
There are many situations that prompt home owners to begin looking into refinancing but no matter the circumstances, inevitably any type of refinance is created to save and create money for homeowners. Some home owners need extra cash monthly to pay other bills or to budget better for the holidays while other home owners may refinance to take advantage of current interest rates. There are two types of VA refinance loans that are most commonly used in home refinancing and each one can be tailored to suit homeowner’s needs.
Home Equity (Cash Out) Refinance
One option of refinance for VA home loans is Home Equity Refinancing. Home Equity Refinancing, also coined as a Cash Out Refinance, allow home owners to refinance on their current VA home loan with a lower and fixed interest rate as well as receive extra financing with cash. What this means is that this loan is not a second home loan but a direct refinance on your original loan and gives you, the homeowner, cash for any reason you may need. With Home Equity Refinancing, home owners can get money to pay for items such as an education, a new car or even to do improvements to the home before looking to sell. Instead of taking out a second loan and going into more debt for university tuition or other debt causing (yet necessary) items, homeowners can refinance, pay for those things and just pay one low amount monthly for all of it.
The reason this can be done is because VA home loans are guaranteed by the government, meaning that much like your original VA loan, there are less risks involved for lenders and the refinancing options are less expensive than they would be for non-veterans. However, it is important to remember that you are taking out a loan on your home’s equity, which means that the risks are the same as with any other loan with an added detriment of a decrease in your home’s equity.
Streamline Refinance
Streamline loans are also referred to as Interest Rate Reduction Loans and give home owners reduced interest rates through refinancing. With a VA Streamline refinance, home owners can refinance their home to take advantage of low interest rates, lower monthly payments and keeping more money to pay for other monthly bills. Streamlined loans allow veterans the option of lowering monthly payments and interest rates with no or little out of pocket costs and can be completed rather quickly compared to traditional loans and refinancing processes, which is why it is termed as a “streamline” loan.
You may have heard the term “No Cost” Streamline Refinance loan but this just means that the lender pays the closing costs or the costs roll into the refinance total amount. Here are a few basics to keep in mind when considering an Interest Rate Reduction loan.
Streamline loans differ from Cash Out loans because a veteran can in no way received cash back as they would with the other type of refinancing. They also do not require an appraisal or employment/income verification because the homeowner is only lowering an interest rate, not asking for more money.
Unlike the home equity loan where a homeowner can refinance without a specific amount of time as a home owner, a streamlined loan requires that the homeowner(s) have lived in the house for a minimum of one year with up-to-date payments.
VA Refinance Loans
We hope that this guide has given you and other homeowners a little more insight to your VA refinancing options and if you have any questions, comments or concerns, we would be glad to discuss them with you.