VA Loans
A VA loan is a mortgage loan guaranteed by the Department of Veterans Affairs(VA). This program was designed to allow military veterans to obtain financing for the purchase of single-family homes, condominiums, manufactured homes, or newly constructed homes. The VA doesn’t originate these mortgages, but the VA does set the qualification guidelines and guarantees the loans.
One of the main features of this program is that it allows veterans to purchase a home with no down payment. With a VA loan, an eligible veteran can borrow 103.6% of the sales price. Unlike conventional or FHA loans, backed by the Federal Housing Administration, VA loans don’t require the additional purchase of private mortgage insurance. Without the cost of private mortgage insurance, the veteran can qualify for a larger mortgage amount.
To qualify for a VA loan or refinance, one must be an active duty service member, an honorably discharged veteran or the spouse of a current service member or veteran. If the borrower is the widow or widower of a veteran, they must be unmarried at the time of the loan.
At times during the life of the mortgage, it may be beneficial to refinance the loan. Refinancing can sometimes lower the interest rate or the monthly payment or both, and the regulations regarding a refinance make the process relatively easy. There are two main types of VA refinancing loans.
VA IRRL
Most homeowners will choose a VA Interest Rate Reduction Refinance Loan (IRRL), also known as a streamline refinance. This type of refinancing is less costly and easier to complete compared to other types of mortgage refinancing. To qualify, you’ll have to be eligible under the lender’s financial requirements, and you’ll have obtained a certificate of eligibility.
The VA also requires there to be a “net tangible benefit” for refinancing to be approved. This term simply means that the refinancing needs to make sense from a financial standpoint, leaving the homeowner in a better position than before. This could mean that the new loan will have a lower interest rate, or that the borrower is changing from an adjustable-rate mortgage to a fixed-rate loan.
A VA IRRL doesn’t require you to live in the home you’re refinancing, though it does require that you have lived in the home at some time. This is a particularly beneficial aspect for active duty members that may be stationed in a new area but want to keep their home until such time as they return to the area.
Lenders will require the borrower to have a certain credit score to qualify, and this minimum score can vary from one lender to another. In addition to basic VA eligibility and credit scores, the borrower will have to meet certain guidelines as to the amount of debt they carry, called their debt to income ratio. Generally speaking, the debt-to-income ratio should be in the range of 40%. Again, the specific requirements vary by lender, and they may make exceptions for borrowers with a strong payment history.
VA Cash Out Refinance
Another type of refinancing plan is the cash out refinance. Even if the borrower has a current conventional mortgage, it can still be converted into a VA cash out loan, as long as they meet the regular VA eligibility requirements. In fact, the VA cash out loan is the only way to convert a conventional loan into a VA loan.
The cash out refinance allows veterans to access the equity in their home by refinancing up to 100% of its appraised value. However, the decision on the exact amount of the loan will be determined by the lender and the appraised value of the home. Unlike the VA IRRL , a VA cash out refinance arrangement requires the borrower to reside in the home in question.
VA Refinance Fees
VA refinance loans typically have the same sort of fees as any other mortgage product, but they also have a VA funding fee. The funding fee of an IRRL is .05% of the loan amount. For a VA cash out refinance, the funding fee is 2.3% of the loan if it’s your first VA loan. Otherwise the funding fee would be 3.6%.
The funding fees don’t have to be paid if the veteran has a service related disability or if the borrower is the surviving spouse of a service member who died in the line of duty from a service related injury. Any active duty service members who have received a Purple Heart are also exempt from these fees.
When obtaining a VA IRRL, these fees can be included in the loan amount. For a VA cash out refinance, the fees have to be paid up front or with the cash proceeds of the loan.
Certificate of Eligibility
To start the process of obtaining a VA loan, the borrower will have to obtain a Certificate of Eligibility (COE) from the Veterans Administration. This certificate can be obtained online by following this link.
Let Us Help You!
For over 20 years, Oklahoma’s premier mortgage company, Financial Concepts Mortgage, has been providing mortgage assistance to the citizens of Oklahoma with some of the best rates in the nation. We do our best to relieve you of the stress surrounding the home-buying or refinancing process. Our goal is to create lasting relationships with each and every client and to continue providing excellent service for years to come. If you’re a first-time home buyer, a previous homeowner, are interested in refinancing, or are looking to consolidate debt, we can help. Our Oklahoma-based team will work with you and your family to ensure that you get a home loan solution tailored to your specific needs.
For more information about our company or the services we offer, visit our website. To speak directly to one of our loan officers, give us a call at (405) 777-4281 or visit us in person at any of our four locations in Enid, Edmond, Midwest City, or Eufaula.