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Refinancing into a VA Loan

Mar. 4, 2014 - 12:03PM   |  
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A refinance is nothing more than a new loan replacing an existing one and there are a few reasons why a refinance makes sense. For instance, a borrower has a mortgage with a 6.00 percent rate and the borrower can save money by refinancing into a lower 4.00 rate. A refinance can also be a good thing when adjusting the term of the loan. VA loans as well as other mortgages can be amortized over 10, 15, 20, 25 or 30 years. The longer the loan term, the lower the monthly payment. Borrowers can lower their payment not only by lowering the rate but by extending the term. Or a borrower took out an adjustable rate mortgage and wants to refinance into a more stable fixed rate loan. And during the process, a borrower decides to pull cash out during a refinance transaction.

The VA Streamline Option. Because the refinance is a brand new loan replacing an existing one, a new application must be completed and submitted to a lender for an approval. That can mean a whole new set of documents and another round of paperwork including income tax forms, pay check stubs and bank statements. Yet the VA program has the Interest Rate Reduction Refinance Loan, or IRRRL, most commonly referred to as a VA streamline refinance.

A VA streamline doesnít require income documentation so no need for paycheck stubs or tax returns. No bank statements are required and there is no credit check. As long as there is no more than one payment in the past 12 months that is more than 30 days past the due date, the loan may qualify for the streamline. And lenders may not even require an appraisal. Itís a true benefit but only for a VA to VA transaction meaning the streamline refinance must replace an existing VA loan.

But what if you donít have a VA loan but need to refinance, what can you do?

A conventional mortgage typically needs at least a 10 percent equity position before itís eligible for a refinance. Over the past several years, real estate values plummeted and property owners found they could not refinance their mortgages because the value of the home was lower than what was owed. They were upside down. There are avenues to refinance such a loan as long as the loan is owned by Fannie Mae or Freddie Mac but if not, then the borrower cannot refinance if more is owed on the home than what it is worth. But if you do have a property whose value is at or just above the amount owed, there is still a refinance option. A VA refinance.

The Standard VA Refinance. Say you have a mortgage balance of $100,000 and your property is worth $100,000. If youíre VA eligible you can explore paying off the existing $100,000 mortgage and refinancing it into a VA loan. This process allows you to refinance your loan to get a lower payment or change the loan term without the 10 percent minimum equity rule. Youíll still have to document the file completely with new pay check stubs and W2 forms and the rest of the documentation typically provided for any new mortgage.

This transaction isnít all that common but itís still a possibility. Refinancing an existing loan into a VA loan doesnít require the old loan to be VA guaranteed. Any mortgage can refinance into a VA loan using standard VA loan approval guidelines and when there are value issues it just might be that a standard VA refinance mortgage is the answer.

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