Refinancing Your VA Loan

With such a dramatic drop in mortgage rates in the last several years, many veterans are sitting on VA loans with rates much higher than the current market. And with the media touting "the lowest rates in generations," you can bet a lot of folks are asking about refinancing their homes. Why not, when you can reduce your interest rate and monthly payment using the VA "Streamline" Program with minimal to no out-of-pocket expenses?

What makes this a "streamline" program is that the lender will not always require an appraisal (saving you about $450), a full credit report (only mortgage history and scores), or even ask you for the usual income, asset, or debt information. Many lenders verify your employer, position, and time on the job, but income is not typically taken into consideration. If an appraisal is required, it just has to cover the amount of your new loan. If an appraisal is not required, then the value of your property will not matter, although there are exceptions. This program can even be used for rental properties that are still carrying a VA loan on them.

Depending on the timing of your loan closing, you may be able to "skip" one (or even two) mortgage payments. (The term "skipped" is used loosely here, as those payments are accounted for in your payoff and your new loan balance, but nevertheless, those payments stay in your pocket.) Also, once your current VA loan has been paid in full with your current lender, you will be refunded the entire balance of your escrow account to do with as you wish. The most important benefit is a lower, fixed rate to reduce your monthly housing costs for the life of your VA loan or to cut year's off of your mortgage by refinancing to a 15-year term.

There are basic minimum qualifications to use the VA Streamline Refinance Program. For starters, your current loan must be a VA loan. No past due mortgage balances or late mortgage payments are allowed in the last twelve months with case-by-case exceptions. There are also exceptions for the minimum credit score, but 640 is generally the target on VA. You also cannot get any cash back at closing and the savings on your new VA loan must meet minimum thresholds. As always, other qualifications may apply.

There are real costs involved in refinancing your VA loan of course, but those costs are offset by the amount of money you save every month. The basic formula is to calculate how many months it will take you to recoup the cost of your refinance. Generally, if you plan to own your home at least that long, then refinancing is to your benefit. Be sure to subtract your "skipped" payments and your escrow refund, as those are real dollars you keep in your pocket as a result of refinancing.