Tips to Consider Before Refinancing a VA Loan
Mortgage refinancing is making a buzz as interest rates continue to become favorable to eligible homeowners. As a VA home loan beneficiary, you could get unsolicited offers from mortgage lenders and other financial institutions to seize the opportunity to reduce your monthly payments. Although the U.S. Department of Veterans Affairs (VA) makes it possible for eligible VA home loan beneficiaries to fulfill their homeownership dreams, there could be situations when refinancing can make a VA home loan even more rewarding.
If you plan to replace your existing VA home loan with a new one under different terms, here are some tips that could help you realize your refinancing goals.
Determine your refinancing goals
Securing a much favorable mortgage interest rate of at least 1 percent is a common reason why you would want to refinance your VA home loan. Another reason to refinance is if you have an adjustable-rate mortgage (ARM) and you want to change it into a fixed-rate mortgage through Interest Rate Reduction Refinance Loan or IRRRL. Cashing out is also one reason why you would want to refinance your VA home loan. Depending on your goals, refinancing a mortgage only makes sense if the outcome will improve your finances.
Find out if you’re eligible to refinance
If you use your VA home loan benefit, you probably know that the VA doesn’t lend you the money to buy a home. Like homebuying, you also need to meet the strict requirements set by lenders, banks, or credit unions before you can refinance your VA home loan. Ideally, you may want to check your finances, sources of income, and credit scores. Aside from the closing and origination costs, you also need to pay a funding fee. For IRRRL, the funding fee is 0.5 percent of the total loan amount. On the other hand, the funding fee for VA-backed cash-out refinance is 2.3 percent of the total loan amount if it’s your first time to use it. You could be exempted to pay a funding fee if you’re receiving a service-connected disability benefit.
Make sure you fully understand an offer before refinancing a VA loan
Be careful with the marketing tactics used by some mortgage lenders to pressure you to accept an offer to refinance your VA-backed home loan. If a lender offers you to skip a few mortgage payments, offers you a refund, or offers you very low interest rates, try to understand all the details first before signing on the dotted line. These too good to be true offers, unfortunately, often result in unwanted or excessive fees.
Shop for a mortgage lender
Shopping for a mortgage lender is worth considering because it gives you the opportunity to compare interest rates against the one you have with your current lender. Some homeowners may realize that they can get better terms and interest rates from other lenders as compared to the offer of their current lender. Since mortgage interest rates frequently change, try to shop and compare offers from at least three lenders.
Consult with a VA loan expert loan advisor
Refinancing a VA-backed loan is worth considering if it will further improve your finances. If this is your first time considering refinancing, a loan advisor that is highly experienced with VA loans may work for you.
Get in touch with a professional LendUS loan advisor today to learn more about your options.