How Many Times can I do a VA Refinance?
This is a question that most borrowers get the answer they want from. The reason is that there is no theoretical maximum placed on the number of times a borrower can refinance, or even how many years must be in between refinances. For most borrowers, that’s everything they need to know, but for those who have an itch for more information on the topic, we’ll dive in deeper here. The VA has a policy in place that a refinance cannot be approved unless there is “substantial net benefit” for the borrower. This benefit is often (but not always) a lower interest rate and/or lower monthly payment. The benefit can be an Energy Efficiency Mortgage (EEM), cash-out for a suitable purpose, or substantially lowered principal from a cash-in refinance. This policy, however, does place a number of practical restraints on the amount of refinances a borrower can do even though there is no theoretical limit. Those practical restraints make it difficult if not impossible to get substantial net benefit from a refinance more than two or three times during the life of a mortgage. These practical restraints include market conditions, the ever-changing lives of the borrowers, and the income of the borrowers.
Market conditions provide a great deal of practical restraints on the net benefit of refinances. For example, right now interest rates are at historic lows, but in 10 years from now, they will likely be higher. Since a lower interest rate is one of the most common ways to get a substantial net benefit from a refinance, 10 years from now it will be much more difficult to get benefit from a refinance simply because the market shifted. Going from a 4.5% interest rate to an 8% interest rate is the exact opposite of a net benefit. Market conditions also affect the value of your home, which will in turn affect how much cash you can get on a cash-out refinance. If you aren’t able to get a sufficient amount of cash out for the purpose you want it for, it’s very likely that there won’t be enough substantial net benefit to the refinance for it to be approved. The restraints brought upon by market conditions make the opportunities for highly-advantageous refinances less frequent.
Along with market conditions, the lives of the borrowers are constantly changing. You may not think of it as such, but deciding to move and buy a new home is a practical restraint on the number of refinances you do on a given home loan. If you no longer own the home, you’re not likely to get a refinance on it, are you? Also, if there is a divorce, marriage, or some other major event in the lives of the borrowers that is going to affect the obligors on the VA loan, the streamline refinance option, the IRRRL, is not likely to be available to you, which may limit your ability to do a refinance on the home, especially if you don’t have sufficient savings to pay the closing costs and VA funding fee on the standard refinance option. There are many practical restraints on how many times a refinance can be done on a home that stem from nothing but the lives of the borrowers themselves.
What can be considered part of the borrowers’ lives, but is also worth talking about all on its own, is the inconsistency of the borrowers’ own income and employment. Once you’ve purchased a home, you’re not going to lose the home as long as you’re making your payments on time. This is true even if you’ve since lost your job and are living on welfare and mercy checks from your rich, eccentric uncle. However, if you are living on welfare and mercy checks from a rich relative, you will almost certainly not qualify for a refinance because you’ll be subjected to the same scrutiny as you were when you first purchased the home. While this is an extreme example, a borrower whose hours were cut or a wife who stops working to have a baby can also affect the income of the household in a way that would disqualify you from having a refinance. In many cases, the VA streamline refinance option is still available to you, but often a standard refinance will not be.