August 31, 2012

Consider Refinancing Into a VA Loan


Thinking about refinancing your mortgage? If you’ve a veteran or qualifying member of the reserves, don’t overlook a VA loan.
Many vets aren’t even aware that they can refinance with a VA home loan even if their current mortgage isn’t through the VA. In fact, statistics show that only about a quarter of borrowers who were eligible for a VA mortgage even used one when buying their home in the first place.
 
In part, that’s because many homebuyers wanted to take advantage of the so-called “exotic” mortgages that were popular back during the housing bubble – interest-only loans, pay-option ARMs, balloon payments, no-income documentation loans, etc.
 
 
Refinance 100 Percent of the Home Value:
Others may have simply wanted to buy a home priced in excess of VA lending limits or simply didn’t need to go the VA route because they had enough money for a down payment and wanted to avoid the VA funding fee.
 
Regardless of the reason, many borrowers in non-VA mortgages who are looking to refinance may have good reasons to look to a VA loan this time around. One of the main ones is that VA loans allow you to refinance with relatively little equity – as high as 100 percent of your homes’ current value (You can also do a cash-out refinance at up to 90 percent of your home value).
 
Although that’s not as high as you can go on a government-backed HARP refinance – the main program for underwater homeowners and whose 125 percent loan-to-value limit was recently lifted – you may find a VA refinance easier to qualify for if you meet the 100 percent standard. The VA limit is also higher than the limit on conventional refinancings, where lenders typically want you to have at least an 80 percent loan-to-value ratio, or charge higher rates if you have less than 20 percent equity.
 
 
 
Funding Fee Yes, Mortgage Insurance No:
One reason many homeowners initially avoided a VA mortgage was the up-front funding fee most borrowers have to pay. Those fees are currently as high as 1.65 percent of the loan amount for first-time borrowers putting less than 5 percent down, and 2.8 percent on subsequent loans (scheduled to drop to 1.25 percent by October 2013). Still, that can significantly boost the cost of the loan.
 
On the other hand, VA mortgages don’t require mortgage insurance, which on a conventional mortgage with less than 20 percent down/equity runs about half a percent of the original loan balance per year. FHA mortgage insurance is even higher, and there’s a 1 percent fee up front as well. So the savings on mortgage insurance can pretty quickly cancel out the cost of the funding fee, which can be folded into the loan amount.
 
VA mortgage rates are also quite competitive. Because the VA guarantees up to 25 percent of the loan amount in most cases, it’s like having a 25 percent down payment – so lenders are willing to offer their best rates. On other types of mortgages or refinancing, you pay a higher interest rate if your equity or down payment is less than 20 percent.
 


 
Streamline Refinance for Current VA Mortgages:
If you already have a VA mortgage, you’re pretty much all set. As long as you’re current on your mortgage payments, with no more than one late payment over the past year, and can document income and employment, you can qualify for what’s called a VA Streamline Refinance. All closing costs can be rolled into the new loan so you can easily take advantage of today’s record low interest rates.
 
All told, a VA mortgage refinance can be a pretty attractive deal. If you’re a qualifying military veteran, member of the Reserve or National Guard or qualifying survivor of a veteran, it’s well worth your while to look into when seeking to refinance your current mortgage.
 

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