Understanding VA Purchase and Refinance Options
The VA Home Loan benefit can potentially be used by eligible borrowers for several types of mortgage transactions, including purchasing a primary residence and certain refinance transactions.
"VA financing is not limited to first-time home purchases."
Home Purchase
VA Purchase Loans
An eligible VA borrower may potentially use a VA-backed purchase loan to acquire an eligible property they intend to occupy as their primary residence. Borrower, property, appraisal, occupancy, entitlement, and lender requirements apply.
Potential benefits may include:
- No VA-required down payment in many qualifying circumstances
- No monthly private mortgage insurance
- Competitive financing possibilities
- Limits on certain borrower-paid fees
- Fixed-rate and certain adjustable-rate structures when available
- No VA prepayment penalty
VA financing does not guarantee approval or zero-down financing. All transactions are subject to applicable eligibility, underwriting, and program requirements.
Who May Be Eligible
VA Purchase Eligibility
VA Home Loan benefits may be available to eligible:
- Veterans
- Active-duty service members
- Certain National Guard and Reserve members
- Certain surviving spouses
- Other qualifying individuals under current VA requirements
A Certificate of Eligibility (COE) generally documents VA Home Loan benefit eligibility.
"A Certificate of Eligibility does not guarantee mortgage approval."
Refinance Options
VA Refinancing
VA financing may also provide refinance options for eligible homeowners. There are two important VA refinance categories, each with different purposes and requirements.
IRRRL
Interest Rate Reduction Refinance Loan
Also known as the VA Streamline Refinance. Designed for eligible borrowers who currently have a VA-backed mortgage.
Cash-Out
VA Cash-Out Refinance
May allow an eligible borrower to replace an existing mortgage with a new VA-backed mortgage and potentially access available home equity.
VA Streamline Refinance
Interest Rate Reduction Refinance Loan (IRRRL)
Also known as the VA Streamline Refinance
An IRRRL is designed for eligible borrowers who currently have a VA-backed mortgage and want to refinance that existing VA loan. VA and lender requirements generally require the refinance to provide an appropriate financial benefit to the borrower under applicable rules.
Potential objectives may include:
- Reducing the interest rate when eligible
- Changing certain loan terms
- Moving from an adjustable-rate mortgage to a fixed-rate structure when appropriate
- Potentially reducing the monthly principal-and-interest payment
An IRRRL does not guarantee a lower payment or that refinancing will always save money. Results depend on the specific transaction and borrower circumstances.
Important Limitation
What an IRRRL Does Not Do
"An IRRRL is generally not designed as a traditional cash-out transaction."
Borrowers seeking significant equity proceeds may need to explore a different refinance structure, such as a VA Cash-Out Refinance.
Specific maximum cash amounts are not quoted here. Discuss your situation with a mortgage professional to determine which refinance option may be appropriate.
Equity Access
VA Cash-Out Refinance
A VA cash-out refinance may allow an eligible borrower to replace an existing mortgage with a new VA-backed mortgage. Depending on borrower eligibility, equity, property value, entitlement, lender guidelines, and applicable VA requirements, the transaction may potentially allow the borrower to access some available home equity.
The existing mortgage does not necessarily have to be a VA loan for a borrower to investigate VA cash-out refinance eligibility.
A specific amount of cash, maximum financing, particular loan-to-value ratio, approval, or equity availability cannot be guaranteed. Results depend on the individual transaction and borrower circumstances.
Potential Uses
Why Might Someone Consider Cash-Out Refinancing?
Homeowners may consider accessing equity for legitimate financial purposes such as:
- Home improvements
- Consolidating certain debts
- Education expenses
- Major expenses
- Other financial objectives
"Using home equity increases or restructures debt secured by the property and should be evaluated carefully."
Evaluate Carefully
Refinancing Is a New Mortgage
"A refinance replaces or restructures mortgage financing and should be evaluated as a new financial transaction."
Refinancing may involve:
- New loan terms
- Closing costs
- Interest-rate changes
- VA Funding Fee when applicable
- Appraisal requirements depending on the program
- Credit and income review depending on the transaction
- Changes to the total amount of interest paid over time
VA Funding Fee
VA Funding Fee on Refinance Transactions
A VA Funding Fee may apply to eligible VA refinance transactions. The amount and applicability can depend on the transaction and borrower's circumstances. Certain eligible borrowers may be exempt.
Specific funding-fee percentages are not displayed here as they may change. Verify current rates with a mortgage professional.
Rate vs. Full Picture
Should I Refinance Just Because the Rate Is Lower?
Not necessarily. A lower interest rate alone does not automatically mean refinancing is financially beneficial.
"The lowest advertised rate is not the only factor in deciding whether to refinance."
Borrowers should evaluate:
Side-by-Side
VA Purchase vs. VA Refinance
VA Purchase
Acquire an eligible primary residence.
Typical Considerations
- VA eligibility
- Entitlement
- Property eligibility
- Appraisal
- Occupancy
- Down payment when applicable
- Closing costs
VA IRRRL
Refinance an existing VA-backed mortgage under applicable VA requirements.
Typical Considerations
- Existing VA mortgage
- Financial benefit
- New rate and term
- Closing costs
- Funding Fee when applicable
VA Cash-Out Refinance
Replace existing mortgage financing and potentially access eligible home equity.
Typical Considerations
- VA eligibility
- Property value
- Available equity
- Credit/income qualification
- Appraisal
- Closing costs
- Funding Fee when applicable
Using the Benefit Again
Can VA Financing Be Used More Than Once?
Eligible Veterans and service members may potentially use the VA Home Loan benefit more than once. Future eligibility can depend on:
- Available entitlement
- Restoration of entitlement
- Existing VA-backed mortgages
- Previous VA loan history
- Other applicable VA requirements
Not every borrower automatically has full entitlement available. Discuss your entitlement situation with a mortgage professional.
Consumer Awareness
Refinance Consumer Protection
Veterans should be cautious about refinance advertisements. Carefully reviewing any offer and the full Loan Estimate before proceeding is always worthwhile.
Be cautious of promises involving:
- Extremely low rates
- Skipped mortgage payments
- Guaranteed savings
- "No-cost" refinancing without explaining the structure
- Immediate cash without explaining new debt
- Urgent deadlines that pressure the borrower
Before You Purchase
Questions to Ask Before a VA Purchase
- Am I eligible for VA financing?
- How much entitlement do I have available?
- Do I need a down payment?
- What property requirements apply?
- What are my estimated closing costs?
- Does the VA Funding Fee apply to me?
- What would my estimated total housing payment be?
Before You Refinance
Questions to Ask Before a VA Refinance
- What type of VA refinance may apply to me?
- What is the financial benefit of refinancing?
- What are my closing costs?
- Does the VA Funding Fee apply?
- Will my loan term restart or change?
- How will the refinance affect my total borrowing cost?
- Am I taking cash from my home equity?
- How long might it take to recover the refinancing costs?
- Is keeping my current mortgage a better option?
Ready to Begin?
Explore Your VA Purchase or Refinance Options
Connect with the Prosper Path Group team to discuss your VA eligibility and explore the purchase or refinance options that may be available for your situation.
VA purchase and refinance programs are subject to current U.S. Department of Veterans Affairs requirements, borrower eligibility, Certificate of Eligibility, available entitlement, property eligibility, appraisal requirements, lender underwriting guidelines, current market conditions, and program availability. Refinancing may involve closing costs, a VA Funding Fee when applicable, changes to the loan term, and changes to the total cost of borrowing. Refinancing is not appropriate or beneficial in every situation. Not all borrowers or properties will qualify. This information is provided for general educational purposes and is not a commitment to lend.
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