Can I Refinance a VA Loan? Process & Requirements

VA loans offer a valuable benefit to eligible service members, veterans, and surviving spouses, extending beyond initial home purchases to include refinancing options. Refinancing a mortgage involves replacing an existing loan with a new one, often to secure a lower interest rate, change loan terms, or access home equity. This process can lead to reduced monthly payments, significant interest savings, or the ability to consolidate other debts.

Types of VA Refinance Options

The Department of Veterans Affairs (VA) provides two primary refinance options: the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out Refinance.

The VA Interest Rate Reduction Refinance Loan, known as an IRRRL, is designed to help borrowers obtain a lower interest rate or convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. This option is generally more straightforward as it typically does not require a new appraisal or credit underwriting. Borrowers must already have an existing VA loan to qualify for an IRRRL. The refinance must result in a “net tangible benefit,” such as a lower interest rate or a more stable payment.

The VA Cash-Out Refinance allows eligible homeowners to tap into their home equity, refinance a non-VA loan into a VA loan, or pay off other debts. This type of refinance typically involves a full appraisal of the property and a comprehensive review of the borrower’s credit and income. While the VA technically permits borrowing up to 100% of the home’s value, many lenders set their own caps, often around 90% loan-to-value (LTV).

Eligibility Criteria for VA Refinancing

To qualify for a VA refinance, borrowers must meet general VA loan eligibility, verified through a Certificate of Eligibility (COE). While an IRRRL usually does not require a new COE, a Cash-Out Refinance often does. The COE confirms the individual has met the minimum service obligations for VA home loan benefits.

For an IRRRL, the borrower only needs to certify that they previously occupied the home as their primary residence. For a Cash-Out Refinance, current occupancy as the primary residence is typically required.

Lenders will assess creditworthiness and stable income. Most lenders require a minimum credit score, often around 620, for both IRRRLs and Cash-Out refinances. Income documentation, such as pay stubs and W-2 forms, is generally required for Cash-Out refinances to ensure the borrower’s ability to repay the new loan. Additionally, a loan seasoning period is usually required, meaning the existing VA loan must have been in place for at least 210 days and have had six consecutive monthly payments made.

The VA Refinance Application Process

Initiating a VA refinance begins by selecting a VA-approved lender. Comparison shopping among various lenders is advisable to find the most favorable terms and interest rates. Once a lender is chosen, the borrower proceeds with the initial application, providing necessary financial documentation.

Required documents commonly include recent pay stubs, bank statements, and current mortgage statements. While an IRRRL typically requires less paperwork, a Cash-Out Refinance necessitates a more thorough submission. For a Cash-Out Refinance, a home appraisal is a mandatory step to determine the property’s current market value and the amount of equity available.

Following document submission, the loan enters the underwriting phase, where the lender reviews all financial information to assess risk and ensure compliance with VA and lender guidelines. If approved, the process culminates in the closing, where all final documents are signed, and the loan is funded.

Associated Costs of VA Refinancing

Refinancing a VA loan involves several costs, including the VA Funding Fee. This one-time fee helps sustain the VA loan program and its benefits. For an IRRRL, the funding fee is a flat 0.5% of the new loan amount. For a Cash-Out Refinance, the fee can range from 2.15% for first-time use to 3.6% for subsequent uses, depending on factors like prior VA loan usage. Certain individuals, such as veterans receiving VA compensation for a service-connected disability, are exempt from paying this fee.

Borrowers typically encounter lender fees, which may include origination fees or discount points. Origination fees are generally capped at 1% of the loan amount for VA loans. Discount points can be paid to reduce the interest rate. Additionally, third-party costs include appraisal fees (for Cash-Out refinances), title insurance, credit report fees, and recording fees.

Other expenses include prepaid items like property taxes and homeowners insurance. The total closing costs for a VA refinance can range from 1% to 6% of the loan amount. Many of these costs, including the VA Funding Fee, can often be rolled into the new loan amount, reducing upfront out-of-pocket expenses for the borrower.