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A VA-backed cash-out refinance loan may help you to:
- Take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs,
or - Refinance a non-VA loan into a VA-backed loan
On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.
You’ll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Make sure you understand how your new loan amount relates to the value of your home. While your lender can advise you on the costs and benefits of the transaction, you’ll want to be sure you understand what you’re getting into.
Steps on getting a cash-out refinance loan
1. Find a lender. You’ll go through a private bank, mortgage company, or credit union—not directly through the VA—to get a cash-out refinance loan. Terms and fees may vary, so contact several lenders to check out your options.
Note: Be careful when considering home loan refinance offers. Claims that you can skip payments or get very low interest rates or other terms that sound too good to be true may be signs of a misleading offer.
2. Request your Certificate of Eligibility (COE).
You’ll need to show your COE to your lender as proof that you qualify for the home loan benefit.
3. Give your lender any needed information - In addition to your COE, you’ll need to give your lender:
- Copies of paycheck stubs for the most recent 30-day period
- W-2 forms for the previous 2 years
- A copy of your federal income tax returns for the previous 2 years (required by many, but not all lenders)
- Any other information your lender requires
Note: The lender will order a home appraisal, an expert assessment of the value of your home.
4. Follow your lender’s process for closing on the loan, and pay your closing costs. You may need to pay a VA funding fee at closing. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.
Often called a “streamline” refinance, an IRRRL may help you to:
- Lower your monthly mortgage payment by getting you a lower interest rate,
or - Make your monthly payments more stable by moving from a loan with an adjustable or variable interest rate (an interest rate that changes over time) to one that’s fixed (the same interest rate over the life of the loan)
On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.
You’ll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Before you decide to refinance, divide your closing costs by how much you expect to save every month by refinancing to see if it’s worth it. While your lender can advise you on the costs and benefits of the transaction, you’ll want to be sure you understand what you’re getting into.
Steps on getting Streamline IRRL Refinance
1. Find a lender. You’ll go through a private bank, mortgage company, or credit union—not directly through us—to get an IRRRL. Terms and fees may vary, so contact several lenders to check out your options.
Note: If you have a VA home loan be careful when considering home loan refinance offers. Claims that you can skip payments or get very low interest rates or other terms that sound too good to be true may be signs of a misleading offer.
2. Give your lender any needed information. If you have the Certificate of Eligibility (COE) you used to get your original VA-backed home loan, take it to your lender to show the prior use of your entitlement. If you don’t have your original COE, ask your lender to get your COE electronically through the VA Home Loan program portal.
3. Follow your lender’s process for closing on the IRRRL loan, and pay your closing costs. You may need to pay the VA funding fee. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.
Note: With an IRRRL, you can include these costs in the new loan so you don’t have to pay up front. Or, you may be able to make the new loan at an interest rate high enough so your lender can pay the costs.
The Consumer Financial Protection Bureau and VA are issuing their first, “Warning Order,” to service members and Veterans with VA home loans. If you have a VA home loan, then there is a good chance that you have already come into contact with unsolicited offers to refinance your mortgage that appear official and may sound too good to be true.
Many of these solicitations promise:
- Extremely low interest rates
- Thousands of dollars in cash back
- Skipped mortgage payments
- No out-of-pocket costs
- No waiting period
Don’t be fooled. Before responding to any unsolicited offers, here is what you need to know.
Operational environment
Some lenders marketing VA mortgage refinances may use aggressive and potentially misleading advertising and sales tactics. Lenders may advertise a rate just to get you to respond, or you may receive a VA mortgage refinance offer that provides limited benefit to you while adding thousands of dollars to your loan balance.
How will you know if the offer is too good to be true? Here are some offers and tactics to watch out for:
- Offers to skip one or two mortgage payments – Lenders sometimes advertise this as a benefit of a VA mortgage refinance; in fact, VA prohibits a lender from advertising the skipping of payments as a means of obtaining cash in an Interest Rate Reduction Refinance Loan (IRRRL) . Certain lenders nevertheless use this as a selling point when they are unable to offer cash-out or a significantly lower interest rate.
- Offers to receive an escrow refund – Lenders may promise that you will receive a certain amount of cash as a refund from your escrow account; however, the amount you may receive is dependent on how much is left in your account at the time the loan closes, which may be much less than you were promised. We have heard from service members who were promised a certain refund amount and received a much lower amount at closing. We have also heard from service members who have experienced problems with their new escrow accounts after closing and have had to make higher monthly payments to make up for the shortfall.
- Low-interest rates without specific terms – Lenders may advertise a low-interest rate to get you to respond to an advertisement. You might assume these rates are for a 30-year fixed-rate mortgage, but in many cases, the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or you may have to pay discount points to receive the advertised rate.
- Aggressive sales tactics – Certain lenders may try to push you into a VA mortgage refinance. For example, you may be called by a lender multiple times or receive VA mortgage refinance offers in the mail that look like a check or bill to get you to open it. You may be pressured to refinance your VA loan only a month or two after you closed on your current VA loan.
Be prepared to: Understand that certain advertised benefits, such as no out-of-pocket closing costs, skipped mortgage payments, and escrow refunds, are costs that are generally added to your loan and increase the overall principal balance. These are all red flags that may indicate that the loan is less likely to benefit you. Before you proceed with a VA mortgage refinance, be sure to consider the long-term and short-term benefits and consequences of refinancing your loan.
Note: If you have a problem with a VA mortgage refinance or other mortgage issues, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).