How Soon Can You Refinance a VA Loan?

Refinancing a Department of Veterans Affairs (VA) loan can be a beneficial financial step for eligible service members and veterans, potentially leading to lower interest rates, reduced monthly payments, or access to home equity. This process involves replacing an existing mortgage with a new one, often under more favorable terms tailored to the unique benefits provided by the VA home loan program. Understanding the specific requirements and options available is important for anyone considering this financial maneuver.

VA Refinance Waiting Periods

Before a VA loan can be refinanced, specific waiting periods must be observed to ensure a history of consistent payments. Borrowers must wait until at least 210 days have passed since the first mortgage payment was due on their existing loan. This “210-day rule” is a primary timing consideration for most VA refinance transactions.

Additionally, at least six consecutive monthly payments must have been made on the current mortgage. Both of these conditions must be met for most VA refinance types, including the Interest Rate Reduction Refinance Loan (IRRRL) and the VA Cash-Out Refinance. While the VA sets these minimums, individual lenders may impose their own additional seasoning guidelines, sometimes extending the waiting period.

Types of VA Refinance Options

Two primary types of VA refinance loans are available, each serving distinct financial objectives. The first is the Interest Rate Reduction Refinance Loan (IRRRL), often referred to as a VA Streamline Refinance. This option allows veterans to refinance an existing VA loan to secure a lower interest rate, reduce their monthly payments, or convert an adjustable-rate mortgage (ARM) into a fixed-rate loan.

The IRRRL involves less documentation, waiving the need for an appraisal, income verification, or a new Certificate of Eligibility (COE). A requirement for an IRRRL is demonstrating a “net tangible benefit,” meaning the refinance must result in a clear financial advantage like a lower interest rate or a more stable loan structure.

The second option is the VA Cash-Out Refinance, which allows eligible homeowners to tap into their home equity. This option can be used to take cash out for various needs like home improvements or debt consolidation. Unlike the IRRRL, a VA Cash-Out Refinance requires an appraisal to determine the home’s value and more extensive documentation. It can also be used to refinance not only an existing VA loan but also a non-VA loan into a VA-backed mortgage.

Eligibility Requirements

To qualify for a VA refinance, borrowers must meet specific criteria related to their service, finances, and the property itself. Individuals must possess existing VA loan eligibility, demonstrated by a Certificate of Eligibility (COE). This eligibility entails a minimum period of active duty service during wartime or peacetime, or a specific duration in the National Guard or Reserves.

While the VA does not impose a minimum credit score, lenders set their own credit score requirements, with many looking for a score of 620 or higher, particularly for Cash-Out refinances. Lenders also evaluate a borrower’s debt-to-income (DTI) ratio to ensure they can comfortably manage the new mortgage payments. The property being refinanced must be the borrower’s primary residence, or they must certify that they previously occupied it.

Applying for a VA Refinance

Once eligibility is confirmed and the appropriate refinance option is chosen, the application process for a VA refinance begins with finding a VA-approved lender. It is beneficial to compare rates and terms from several lenders, as these can vary significantly. After selecting a lender, the next step involves submitting an initial application along with necessary documentation.

Documents requested include:
Government-issued identification
Recent pay stubs
W-2 statements from the past two years
Bank statements

For a VA Cash-Out Refinance, an appraisal of the home will be required to determine its current market value and available equity. The loan then proceeds to underwriting, where the lender reviews information to assess risk and ensure compliance with VA and lender guidelines. The final stage involves loan approval and closing.

Refinance Costs

Refinancing a VA loan involves several costs, with the VA Funding Fee being a key component. This one-time governmental fee helps offset the cost of the VA home loan program to taxpayers. The funding fee percentage varies based on the type of refinance and whether it’s a first-time or subsequent use of VA loan benefits. For instance, the funding fee for an IRRRL is 0.5% of the loan amount, while for a Cash-Out Refinance, it can range from 2.15% for first-time users to 3.3% for subsequent uses.

Certain veterans are exempt from paying the VA Funding Fee, including those receiving VA compensation for a service-connected disability, those entitled to such compensation but receiving retirement pay, and Purple Heart recipients. In addition to the funding fee, borrowers incur standard closing costs, which may include origination fees, title insurance, and recording fees. Many of these costs, including the funding fee, can be rolled into the new loan amount, reducing upfront out-of-pocket expenses, though this means paying interest on them over time.