Owning a home comes with many responsibilities and enjoyment over the years for many homeowners. It’s a process that can be well worth the effort to building equity and a place to grow into. Veterans can obtain financing through a loan through the Veteran’s Administration. There are many perks with a VA loan such as equity cash out and competitive rates.
VA Loan Fees And Hidden Costs
The VA loan is backed up by the administration. However, it is almost always exclusively serviced and rendered by a private mortgage broker or bank. Be sure to obtain all the details on fees and rates up front before signing the note. Funding fees range from 0.5% to 3.3%. Closing costs can be included in the mortgage as well.
It’s important to note that many of these loans can also have full financing. These no down payment loans use good credit to reduce out of pocket expenses. This may affect VA interest rates and should be checked through multiple banks.
Securing Loan Documents
The process of securing a Veteran’s Administration Loan requires additional steps to consider. This usually requires additional documentation and verification on the back end to underwrite the loan. Many borrowers shy away from a VA loan due to these confusing requirements. Fortunately, there are a few key tips to remember that will help move this process quickly.
This certificate is almost always done by the lender. However, you can use the ebenfits portal through the VA to check on supporting documents needed.
- Disclose all previous addresses
- Bring all recent bank and financial statements to the table
- Make sure the lender quickly services the Certificate of Eligibility
Financing Against Other Products
The VA loan has many perks that borrowers enjoy after the financing process. Many borrowers can have more than one VA loan out at a time under certain circumstances. The VA loan is also beneficial those wanting to finance equity immediately. This cash out option is available that’s unavailable in loans through the Federal Housing Administration. This allows borrowers to take cash out of the home equity for improvements or paying down debt.
Other perks include streamlined financing and the ability to avoid private mortgage insurance for less than 20% down. The streamlined financing allows you to refinance the mortgage with far less paperwork than a traditional home refinance.
A successful VA loan requires a mix of good homework beforehand and finding a quality lender. Some lenders handle a greater load of VA loans. They may have underwriters keen on processing items faster. Using these tips should help guide your first appointment with the bank to start that process on buying a new home.
Refinancing your home mortgage is a major step for any homeowner to take, and it can provide you with substantial rewards. Generally, refinancing your existing home loan may lower your interest rate, helping you to pay your loan balance off more quickly and easily. You may be able to adjust your loan term for faster debt reduction, enjoy more affordable mortgage payments and more. While there are many potential benefits for you to enjoy by refinancing, you must find the right refinance loan program to meet your needs. Each loan program has different terms as well as different potential benefits for the homeowner to enjoy. The Interest Rate Reduction Refinance Loan program available through the Veteran’s Administration may be one option to consider.
Who is Eligible?
Eligibility requirements for the IRRRL program are fairly straightforward. First, you must be a qualified veteran or military professional who qualifies for VA entitlement benefits. Second, you must have an existing VA loan on your home. This program is not suitable for refinancing a non-VA home loan. You should be aware that there is no credit check requirement for this loan program. This means that it may be an ideal option for you to consider if you need to refinance your mortgage and you have lower credit scores.
What Can You Expect From the IRRRL?
The IRRRL program is typically used by existing VA loan participants who wish to lower their interest rates. It provides you with an exceptional way take advantage of a lower interest rate without the need for an appraisal or a credit check. The underwriting process is easy, and your previous entitlement benefits that were used with your current VA loan will be converted to this loan. This program does not allow you to get cash back from the loan process. Therefore, if you intend to obtain equity through a cash-out refinance loan, you will need to look for a different loan program to apply for. In addition, you must have previously lived in the home, but you do not need to currently live in the home to qualify.
What Are the Closing Costs?
The IRRRL VA program is touted as a home loan option for veterans and military professionals that does not have closing costs. However, this is not entirely accurate. You will not pay out of pocket closing costs in most cases, but there are closing costs. They are simply rolled into the loan. You will not have to pay for a credit report or an appraisal because these are not a part of the loan process. However, your lender or broker may have fees, and you may opt to pay discount points to buy down the interest rate. In addition, there is a VA funding fee that you will be responsible for. The lender’s fee or broker’s fee, the VA funding fee and up to two discount points may be rolled into your new loan amount. Therefore, you may not have to pay any money out of pocket to close your loan. However, some people who wish to pay off their loan as soon as possible may opt to pay these fees at closing.
How Can You Apply?
Any bank or mortgage company can offer the VA’s IRRRL program to you. The financial institution does not have to formally apply to complete this loan program or be a part of an approved network. This means that many lenders may offer this program to you, and their broker or lender fees can vary substantially. Because of this, the VA encourages applicants to shop around in an effort to save money on lender or broker fees. Rates and terms should be similar from broker to broker or lender to lender, so focus on the closing costs when making a comparison. You can then complete the loan application with your preferred lender to begin the loan process.
As you can see, the IRRRL program available through the VA is an excellent financial option to consider if you have an existing VA loan on your home. Carefully review these loan details, and request a few quotes from different lenders to determine if this is a suitable loan program for your needs.
Many people think that they are eligible for a home loan just because they serve in the military. However, there are numerous other requirements that have to be met. The loans are not issued by the Department of Veterans Affairs. The VA does insure a portion of the loan in case the person defaults. This is something that lenders like. However, every lender has their own requirements. That is why it is a good idea to shop around.
Benefits of Getting a VA Loan
- You will be able to get a loan with a lower interest rate.
- You probably will not have to make a down payment.
- You do not have to get mortgage insurance.
Before you decide to buy a home, condo or refinance, you will need to check out the VA loan requirements. The following requirements have to be met in order to get a VA loan:
- Veterans must be in service for the required length of time.
- Veterans must be on active duty for a minimum period.
- People in the National Guard or Reserve may be eligible.
- Surviving spouses of deceased veterans may be eligible.
How to get Your Certificate of Eligibility
In order to get your VA loan benefit, you will need to get a Certificate of Eligibility. There are three ways that you can get a Certificate of Eligibility. You can use your eBenefits account. You can obtain it from a VA-approved lender. You can also fill out the Request for Certificate of Eligibility form and send it to the regional loan center.
How to Complete Your Certificate of Eligibility
You will need the following to get a Certificate of Eligibility:
- Your surviving spouse status
- A Statement of Military Service
- Discharge information
- Your Record of Service and Reason for Separation
General VA Loan Requirements
The requirements needed to get a VA loan are more relaxed than the ones for a conventional loan. However, you still need to have a good credit score and sufficient income. The home that is being financed must be your primary residence.
Down Payment Requirements
Most people will not need to make a down payment. You can reduce the VA funding fee by making a down payment. If the purchase price of the home is less than its appraised value, then you may have to pay a portion of the difference.
There is a limit that is placed on a home that is purchased without a down payment. You can get up to $424,100 without a down payment. These guidelines are identical to the ones that are set by the Federal Housing Finance Agency.
There are stringent property requirements that you must adhere to. New homes must have a protection plan or warranty. There are also requirements that modular and manufactured homes must meet.
You do not have to get mortgage insurance. However, you will be charged a vA funding fee. This covers the cost of mortgage foreclosure. The fee can range from 1.25 to 3 percent. The branch you serve in, the amount of time that you have been in the military and whether you have used your VA benefits will determine the fee. Surviving spouses and disabled veterans may not have to pay a fee.
Required Credit Score
There is not a minimum credit score required. Every lender has its own credit score requirement. The VA also requires that the lender view the person’s entire requirement.
The VA does not have a specific debt-to-loan ratio requirement. However, if your debt to loan ratio is greater than 41 percent, then you will have to provide documentation that proves your ability to pay.
Lenders have additional requirements. This includes things such as a limit on the number of reported late payments in a specific time period. You may also be required to have a higher credit score.
If you are thinking about applying for the Veteran Administration’s Interest Rate Reduction Refinancing Loan program, you are not alone. Many military professionals and veterans take full advantage of the VA loan program when purchasing a home, and the IRRRL allows you the opportunity to refinance to a lower interest rate, a more advantageous loan term or both. However, this loan program is only designed to replace current VA loans. If your first lien is not a VA loan, this is not the right program for you even if you are a military professional or a veteran. A key benefit associated with the IRRRL program through the VA is that there no closing costs, and this may have been one of the key features that attracted you to it. However, there are some caveats that you should be aware of when preparing to apply for this refinance loan program.
No Typical Refinance Loan Costs Included
Current VA mortgage holders love the IRRRL program because they do not have to pay for an appraisal when refinancing their loan under this program. An appraisal may take a week or two to complete, and it may cost several hundred dollars or more. By eliminating the need for an appraisal when refinancing your home mortgage, you can save both time and money. In addition, there is no credit check requirement for the IRRRL loan program. This means that you do not have to pay for an appraisal or a credit report through this program. These are the two most common closing fees associated with a refinance loan, and they are eliminated through this affordable loan program.
How the VA Loan Funding Fee Is Paid
There is, however a VA loan funding fee that you will need to pay at closing. This fee may be waived in some cases, and its amount may alter based on a wide range of circumstances. Many applicants will roll this fee into their loan amount so that they do not have to come out of pocket to pay for any fees. However, if your goal is to pay your loan balance off as quickly as possible, it may be better to plan to pay this fee out of pocket at closing. You should discuss with your lender how you plan to pay for this fee so that you are not suprised by an unexpected closing fee.
What You Need to Know About Lender or Broker Fees
While the loan itself does not have any fees that you will need pay, your broker or lender may have a few fees of their own. Generally, lenders and brokers charge fees related to their time and effort working on the loan. These fees may be a few hundred dollars or much more in some cases. Any lender can complete the IRRRL loan application for you, and this means that you can easily shop around to find the best lender to work with. While it is important to compare fees before selecting a lender, you also need to find a lender who is familiar with VA loans and who has a great reputation in your local community.
The Ability to Purchase Discount Points
As with other types of mortgage loans, you can also pay discount points on the loan. A discount point is usually paid to buy a lower interest rate. This can have a beneficial impact on your loan payment each month and can help you to save money on interest charges. The VA allows you to roll up to two discount points into the loan amount. If you want to pay more than two discount points, you will need to pay the additional money out of your own pocket.
You can see that the advertising you may have seen that states that IRRRL loans have no closing costs is true. However, you can also see that there are clear instances when you may need or prefer to pay for at least some costs out of your own pocket. If you are thinking about refinancing your current VA loan under this program, it is wise to speak with several different brokers or banks to learn more about your options and to compare closing costs.
Taking out Veterans Affairs (VA) loan makes it possible for those who otherwise would not be able to buy a home to do so. VA loans are, generally, affordable and free qualified borrowers from some of the more harsh terms banks may impose when reviewing mortgage applications.
VA loans are not perfect. The rates on an approved VA loan may end up being a bit more than what the borrower turns out to be comfortable with. A solution exists for those who may be struggling with repaying their loan: the Interest Rate Reduction Refinancing Loan (IRRRL) allows for accessing a lower rate of interest.
Rules, Requirements, and Statutes
The most obvious rule in place is the loan must be through the VA. Anyone holding a loan through the government’s FHA program or one through a bank or other lender is not able to apply for this specific category of refinancing. The IRRL loan is strictly for those who hold VA loans.
The loan may also not be combined with a second mortgage. The reasons why are not clear, but this is an ironclad rule currently in place. Another strict rule bars the receipt of cash proceeds from the refinancing arrangement.
What this means is the loan cannot go beyond what is left on the mortgage and tap into the equity. So, borrowing an additional $10,000 to refinance credit card debt with this type of refinancing agreement. A traditional refinancing loan plan could tap into equity. The IRRRL program is rather targeted in its approach and purpose. Those looking for expansive uses of refinancing agreements need to look elsewhere. The problem with looking elsewhere, however, would be the obvious fact a loan outside of the VA system is interest rates are surely going to be higher.
Interestingly, the VA won’t require any appraisals or credit checks when applying for refinancing. The goal of the IRRRL is to be helpful to veterans trying to own a home in an affordable manner. Poor credit or issues with the property do not have an impact on the processing of a VA-based loan. The loans, however, are not issued directly by the VA. The VA works in partnership with approved lending services. These services may require appraisals and credit checks.
Positives Associated with the IRRRL Program
Borrowers do not like to go through a number of hassles with the application process. People looking to refinance a loan may already be under significant financial stress. They do not want to deal with or worry about other issues associated with straightening financial woes out.
The VA’s IRRRL program does try to make things as simple as possible for those wishing to cut down on their loan costs. The absence of any requirements to reapply for a Certificate of Eligibility (CoE) is an example of how things are streamlined. Not forcing applicants to jump through hoops in order to refinance a loan is definitely going to be appreciated.
The lack of a requirement to pay upfront fees may be even more appreciated. While not everyone seeking to refinance a mortgage is struggling with financial issues, many are. Being required to pay additional fees is not a helpful thing to those whose funds and budgets may already be strained. Now, escaping the fees is not an option. Paying the costs associated with processing the loan is inevitable. The costs are weaved into the balance of the new loan making them easier to deal with.
IRRRL Loan Considerations
First, try to get at least a 1% savings in the interest rate with the new loan. By shaving off at least one point, big savings might be procured. There is no benefit to going through the work of refinancing a loan and not saving much on the interest.
Overall, the IRRRL program could prove to be a massive help to those in need of a new loan. Anyone hoping to save even more money on a VA loan now has a means of doing so.
A costly mortgage can do more than drain money out of one’s personal bank account. An expensive mortgage may actually lead to foreclosure. High interest rates on mortgages could very well make meeting monthly mortgage obligations very difficult. In the recent past, large numbers of home foreclosures were the direct result of adjustable rate mortgages reaching a point where meeting monthly obligations became impossible.
Even if things do not reach such dire and cataclysmic levels, paying more than what is necessary with a home loan doesn’t make wise fiscal sense. Refinancing to a lower rate would be much more fiscally prudent than sticking with a mortgage that is overpriced.
Any attempts to take part in a refinancing offer should come with a helpful amount of “buyer beware” concern. Refinancing, in theory, is supposed to help lower costs. Not all refinancing companies serve perfect deals. In truth, there may be hidden costs capable of driving up costs. Who would want that out of a refinancing arrangement?
The Early Payoff Fee
The first annoying fee to beware of does not even come from the refinancing service. Ironically, there may be a “hidden in plain sight” fee on the original mortgage. The terms of the mortgage might come with a penalty/fee when the loan is paid off before the regularly scheduled final payment. The prepayment penalty could amount to several months of interest, which might be costly.
This “hidden” fee really is not hidden since it would be listed in the mortgage contract. The trouble is some borrowers do not read the terms and rules thoroughly before signing. Those surprised about a prepayment penalty might end up with second thoughts about refinancing depending on the overall expense of the penalty vs. the savings with the new loan.
Prepayment penalties may not be an issue for every mortgage holder. Certain states outlaw the penalties. FHA and VA loans do not apply them.
The Cost of Processing
Mortgages are not refinanced on a handshake agreement. New contracts and additional paperwork must be drawn up. All that work comes with a cost. The costs do need to be factored into overall expenses by the person who is choosing to refinance a home loan.
Paying a few hundred dollars on processing costs and paperwork may both shock and enrage those who never expected to be hit with such fees. Unfortunately, there is no way to escape the costs with the exception of simply choosing not to go through with the refinancing.
A financial institution that chooses to refinance a home mortgage surely wants to be sure of the value of the home. Any entity lending money to finance or refinance a home loan positively must make sure the home is not loaded with hazards or problems capable of bringing the value of the property down. The lender cannot ignore the possibility foreclosure may be required. Lending out more money than what the property is worth adds even more losses on those a foreclosure inevitably causes.
That said, the lender is not going to cover the costs for a property inspection nor for an appraisal. The would-be refinancing client ends up paying those costs. Remember when the idea behind refinancing was to save money? That idea can end up buried beneath all the added costs lumped into the refinancing process.
Insurance Adds Costs
Homeowner’s insurance and title insurance are required when refinancing. Not too many people would take the massive risk of not carrying homeowner’s insurance. Some might want to lower their coverage limits which, in turn, would lower their premium. The lender is sure to demand full coverage in terms of rebuilding the property is in effect. In the event of, say, a fire, the lender is relying on the settlement amount to recoup the loan balance.
Refinancing is not inherently bad. Refinancing can, and does, save people money. Still, the company doing the refinancing wants to make money from its endeavors. Homeowners interested in refinancing plans need to be aware of this and adjust expectations accordingly. Otherwise, disappointments and increased cost end up being unavoidable.
A movement is afoot to refinance home loans. The impetus behind the desire of so many mortgage holders to make a big change to their loan terms is simple. The opportunity exists to save money on a home loan through much lower interest rates. Not all borrowers are going to find it easy to refinance. Veterans who took out VA loans to acquire property, however, may find the opportunities to acquire lower interest rates to be easy to grasp.
The Department of Veterans Affairs has excellent refinance programs in place to support the goal of getting a better deal on a home loan.
Refinancing through the VA allows for gaining another exceptional benefit. 100% of the loan can be refinanced. Through 100% refinancing, the previous mortgage can be dropped down a memory hole and the higher rates of interest won’t negatively impact personal finances anymore.
The Two Refinancing Plans Offered by the VA
There are two specific refinancing plans offered by the VA. The first is the Interest Rate Reduction Refinance Loan (IRRRL). The second is the VA cash-out refinance loan.
The IRRRL program is somewhat limited in scope, but it does serve the purpose the applicant seeks from it. The IRRRL refinancing strategy provides very easy rules and requirements for refinancing an existing VA loan. Saving money is possible with this plan. Actually, saving money is required since the loan mandates the new interest rate must be lower than the old one. Applicants cannot use the IRRRL program to change terms awhile increasing the interest rate.
The VA cash-out loan comes with a bigger “landscape” in terms of what the loan can be used for. With the VA cash-out loans, the refinancing can be used for not only VA loans but any type of home mortgage. Yes, that means the cash-out program assists with refinancing mortgages that a private bank issued.
Those who went with a costly mortgage because it was the only thing available probably will be thrilled with the chance to switch to a better deal backed by the Department of Veterans Affairs.
VA Cash-Out Loan Features
While there are some solid mortgage deals available in the financial world, not all of the deals are great for the long-term. An untold number of foreclosures resulted from problems deriving from adjustable rate mortgages and the APR increases they deliver over time.
A VA cash-out loans provide a possible reprieve to a wide range of loans. The wide range would include some very troubling loans. In addition, there is another added item of flexibility associated with a VA cash-out loan.
The option exists to borrow against the equity of the home while refinancing. With the IRRRL loan, this is not possible. With the VA cash-out loan, refinancing the loan and borrowing an additional amount for debt consolidation, home improvement, and so on is possible. The added amount beyond the refinancing is lumped in with the mortgage balance.
Repaying the New Loan
Refinancing to get a better interest rate is a solid way to save money. Simply accepting a new loan with a lower rate of interest does not automatically mean repayment is smooth. With a VA cash-out loan, any adding of addition debt on top of the mortgage refinancing comes with the responsibility of paying an increased debt amount. The inability to do so could create financial problems.
With both the VA cash-out and the IRRRL program, it may be possible to change a 30-year mortgage to a 15-year mortgage. A 15-year mortgage is going to come with a higher monthly minimum payment since the final payoff date comes up so much more quickly than a 30-year mortgage. Financially managing the higher monthly payments must be done properly or else financial strain may set in.
A Good Deal at Hand
A mortgage should be a relatively easy loan to deal with. Changes in a financial situation might not complement the ability to cover mortgage payments. Refinancing is one way to set a course correction, but not everyone is able to acquire a good refinancing deal. Veterans are lucky in the sense VA loan refinancing plans make things so much easier.
Choosing between a VA loan or a traditional loan may not seem like a complicated decision. A VA mortgage should clearly have the advantage because you don’t have to put any money down, or deal with mortgage insurance. You can also receive a better interest rate with a VA mortgage.
However, when you consider other variables, the choice may not be as easy as it seems. Additionally, many of the VA loan benefits have been overstated. Here are some other factors to consider when you are trying to figure out whether to choose a traditional loan or a VA loan.
One of the major factors to consider in the VA vs traditional loan debate is the type of property that you are buying. The VA loan is for a person’s main residence. However, a traditional loan can be used to buy a secondary home or even a vacation home. You can also use it to purchase rental or investment properties.
VA loans are normally offered without requiring you to make a down payment. A lender may require you to pay some money up front if the price of a property exceeds its market value. That may occur in a competitive housing market. Lenders who offer traditional loans have preferred larger down payments, though that amount continues to get smaller and smaller.
Depending on your down payment, a traditional loan mandates that you pay for private insurance, which covers the lender just in case you default on the loan. The insurance could be a simple charge that you will pay at closing, or it could be an ongoing fee that you pay every month. The fee on the private mortgage insurance is based on your credit score. VA loans do not require you to pay for mortgage insurance.
Dealing With Additional Fees
A VA loan comes with a fee to offset loan costs. The charge is based on how much money you pay up front, length, and military service branch. The Veterans Affairs department has noted that veterans who receive compensation for being disabled do not have to pay the funding fee.
The Veterans Affairs Department claims that VA insured loans do not have a specific credit score that lenders must have in order to qualify for the loan. However, research has shown that most VA lenders want applicants to have credit scores of at least 600.
Debt To Income Ratios
While there is no maximum debt to income ratio, a lender may be obligated to show compensating factors; such as residual income, if the total debt is large. Qualifying for A VA Loan is not as easy as one would assume.
Remember to do your research and take your time before making a decision.