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The U.S. Department of Veterans Affairs offers two options for refinancing your mortgage: a streamline refinance and a cash-out refinance. Both are more generous than many other home loans. You also have the option of refinancing into a conventional loan.
You may be able to refinance with a VA loan even if your income has gone down, your home has lost value, or your current loan is not a VA loan.
Here’s what you need to know about refinancing a VA loan:
- Reasons to refinance a VA loan
- Options for refinancing a VA loan
- Which VA refinancing option is right for you?
Reasons to refinance a VA loan
There are several reasons why you might want to refinance a VA loan, such as:
- Get a lower interest rate. If interest rates have fallen or your credit has improved since you took out your loan, a VA refinance could lower your rate.
- Switch from an adjustable rate to a fixed rate. Sometimes, people take out adjustable-rate mortgages because they can be cheaper in the first few years. Military service members who move often may find these loans especially attractive. However, if your rate has increased or you would prefer the stability of a fixed-rate loan, a VA refinance can help.
- Tap into home equity. If you need to reduce high-interest debt, pay for school, or work on your home, a VA cash-out refinance loan may be a good option.
Learn More: How to Refinance Your Mortgage in 6 Easy Steps
Options for refinancing a VA loan
There are three options for refinancing a VA loan:
| VA streamline refinance (IRRRL) | VA cash-out refinance | Refinancing to a conventional loan | |
|---|---|---|---|
| Purpose | Refinance a VA loan at a lower interest rate | Refinance any type of mortgage; can also provide cash back | Refinance any type of mortgage; avoid VA funding fee |
| Eligibility | Current VA borrower | Anyone eligible for a VA loan | No VA requirement |
| Funding fee | 0.5% | 2.3% or 3.6% | None |
| Closing costs | May be less than usual depending on the lender; costs can be rolled into loan | Standard (can be rolled into loan subject to LTV requirements) | Standard (can be rolled into loan subject to LTV requirements) |
| Credit and property underwriting | Not usually required | Full underwriting required | Full underwriting required |
VA streamline refinance (IRRRL)
Best for: Current VA borrowers who want a lower interest rate or shorter loan term with no underwriting or appraisal
A VA streamline refinance, also known as an Interest Rate Reduction Refinance Loan, or IRRRL, allows you to refinance regardless of your financial situation and home value.
This can help you get a lower interest rate and a more affordable monthly payment. An IRRRL can be used even if the home is no longer your main residence.
You can also use this loan to catch up on delinquent payments and late fees, but if you’re more than 30 days behind, credit underwriting is required to show that you’re capable of paying for the new loan.
Requirements
- Must refinance an existing VA loan
- Can’t extend your current loan term by more than 10 years
- Must have previously lived in the home
Pros
- Simple application with no income verification or appraisal in most cases
- Closing costs may be lower if lender doesn’t require underwriting and appraisal
- Can be used for a second home or investment home
- May be able to refinance with negative home equity
Cons
- 0.5% VA funding fee
- No cash out
- Must pass underwriting if your payment will increase by 20% or more
VA cash-out refinance
Best for: Tapping home equity; refinancing a non-VA loan
A VA cash-out refinance allows you to take cash out of your home equity on a VA or non-VA loan. You can also simply refinance a non-VA loan into a VA loan — even if you don’t want to take cash out — as long as you’re eligible for a VA loan.
A VA cash-out refinance is different from a conventional cash-out refinance in that you don’t need as much home equity to qualify.
When you do a cash-out refinance with a conventional mortgage, you’ll typically have to retain at least 20% of your equity in the home and can borrow up to 80% of the home’s value. A VA cash-out refinance allows you to borrow up to 100% of your home’s value.
Requirements
- Must have enough VA entitlement for the loan
- Must occupy the home as your primary residence after closing
- Must have good enough credit and income to qualify
Pros
- Refinance a VA or non-VA loan
- Refinance even if your mortgage is delinquent
- Borrow up to 100% of your home’s value
- Use cash out to refinance debt, pay for school, repair or improve your home
Cons
- Full underwriting required
- Full appraisal required
- 2.3% VA funding fee (first use); 3.6% funding fee (subsequent use)
- Lender requirements may be stricter than VA requirements
Check Out: Complete Checklist of Mortgage Refinancing Requirements
Refinancing to a conventional loan
Best for: Homeowners with at least 20% equity
To avoid paying the VA funding fee, you may want to refinance into a conventional loan. As long as you have at least 20% equity in your home, you won’t have to pay PMI.
Another reason you might want to refinance to a conventional loan is to restore your full VA entitlement. Then, you can use a new VA loan to purchase your next primary residence and the home you are refinancing as an investment property.
Credible makes it easy to compare great refinance rates. In as little as three minutes, you can see prequalified rates from all of our partner lenders. Checking rates is free — and it won’t affect your credit score.
Find My Refi Rate
Checking rates will not affect your credit
Requirements
- Income must be high enough to cover monthly payments
- Home must be worth more than what you borrow
- Credit score must be at least 620
Pros
- Restore your VA loan entitlement for another use
- No VA funding fee
- Property doesn’t need to be owner-occupied
Cons
- If the property’s value or your income has decreased, you may not qualify
- Interest rate may be slightly higher compared to a VA loan
- PMI typically required if you don’t have at least 20% equity
Shopping around for a mortgage can be time-consuming. Fortunately, Credible streamlines this process and makes comparing multiple lenders easy. You can see prequalified rates from our partner lenders in the table below in just a few minutes.
Which VA refinancing option is right for you?
When choosing a VA refinance option, think about which loan type best fits your circumstances. In some cases, such as owing more than your home is worth or being unemployed, an IRRRL may be your only option.
If you have choices, see which one offers the best rate and will save you the most money.
| Refinancing option | Best for |
|---|---|
| VA streamline refinance (IRRRL) | Current VA borrowers who want a lower interest rate or shorter loan term with no underwriting or appraisal |
| VA cash-out refinance | Homeowners who want to tap their home equity and/or refinance a non-VA loan |
| Conventional refinance | Homeowners with at least 20% equity and who want to avoid the VA funding fee |
