How Do I Qualify for a VA Refinance?
This is a great question, and has more to it than it might originally seem. There are two aspects to this question – what makes a borrower eligible for the VA loan program at all, and what types of VA loans are available to borrowers in different situations. A borrower who didn’t use a VA loan to purchase their current home will be looking at different options than a borrower who has already used a VA loan. Eligibility may be different for a borrower who has already purchased a home with a VA loan than for someone who has not yet purchased one.
At its core, qualifying for a VA refinance is very similar to qualifying for a new purchase VA loan. You will need to get a Certificate of Eligibility (COE), need to have sufficient entitlement for the loan you’re trying to take out, and you’ll need to have sufficient income and reliable employment. One of the differences between a veteran who has already used the VA loan program and one who hasn’t is the question of sufficient entitlement. A veteran who has not used the VA loan program before obviously has not used up any entitlement, but a veteran who has may run into issues in a cash-out refinance, depending on how much equity the veteran has in the home (generally this will only be a problem if the value of the home has increased substantially from what the borrower originally bought it for, so it’s a good problem to have). A veteran who has not used the VA loan program before can still get a refinance, but also must have sufficient entitlement available for the loan amount of the refinance – a veteran who used a conventional loan to buy a $1 million home and still owes $800k on it may have difficulty refinancing with a VA loan, depending on where he or she lives.
Anyone who is eligible for the VA loan program is also eligible for VA refinances – most veterans and surviving spouses of veterans who died in service or from service-related disabilities. However, an eligible borrower that is wanting to refinance a home from a conventional loan to a VA loan will not be able to qualify for an Interest Rate Reduction Refinance Loan (IRRRL) – the VA’s streamline refinance option. Only a standard refinance can be used to take a conventional or FHA loan to a VA loan. You can still get a lower interest rate with a standard refinance, it just won’t be as quick, easy, or cheap to do so. There are other concerns about qualifying for a standard refinance as well. If you’re trying to get cash out of the loan using the equity in your home, you may not qualify for the cash-out refinance if the purpose of taking cash out is not acceptable to the lender. The VA makes no judgment call on what should be considered acceptable or not – it’s completely up to the lender.
A veteran who purchased their home with a VA loan will have the same concern with a cash-out refinance: their reason for wanting cash will not be accepted by the lender. As mentioned above, if you qualified for a new purchase VA loan, you will not have trouble being eligible for either type of refinance – an IRRRL or a cash-out. The larger concern becomes which refinance type will best help you meet your goals for refinancing in the first place. Taking cash-out to add a pool to your backyard may or may not be approved on a cash-out refinance, but will certainly not be permitted on an IRRRL. If you have something unique in mind you’d like to do with the cash from a cash-out refinance, speak with your VA loan officer or contact us here at LowVARates to see if the purpose you have in mind is likely to be approved if you apply for a cash-out refinance. If it won’t work out, your loan officer will probably at least have an idea of what your options are elsewhere for funding. Your best bet is to be open and honest with your lender so he or she can best assist you in making a decision.