The VA loan is one of the most popular loan programs in America – with over 14 million veterans and military members taking advantage of this benefit since the end of World War II. What makes VA loans so appealing when refinancing are the relaxed credit requirements and higher refinancing and cash-out refinancing amounts than many typical conventional loans. This allows many more homeowners – especially in difficult housing and financial markets – to refinance their mortgage.
The VA (Department of Veterans Affairs) doesn’t write mortgage. It actually insures loans that are written by banks and mortgage companies. This is similar to how an FHA loan refinance works with a few exceptions. The main one being that refinancing with VA loans is only available for veterans and active members of the U.S. Military (and spouses – even widows, as long as they don’t remarry).
What Are the Benefits of Refinancing with a VA Loan?
• VA loans allows up to a 90% refinance limit – higher than most conventional loan limits.
• No PMI when refinancing with a VA loan.
• No prepayment penalties on VA loans.
• Refinancing with a VA loan is sometimes easier than if you were applying for a conventional loan because of relaxed credit guidelines.
• Less than perfect credit is usually accepted with VA loans.
• VA assistance to veteran borrowers in default due to temporary financial difficulty.
• Ability to roll the VA funding fee into the refinance amount (no funding fee for disabled veterans).
What Closing Costs Are Allowed on a VA Loan?
The lender may charge reasonable closing costs. These costs may not be included in the loan:
• VA appraisal
• Credit report
• Loan origination fee (usually 1% of the loan)
• Discount points (pre-paid interest)
• Title search and title insurance
• Recording fees
• State and/or local transfer taxes, if applicable
No commissions, brokerage fees or “buyer broker” fees may be charged to the veteran when refinancing with a VA loan.
VA Loan Funding Fee Info
The VA charges a funding fee that covers the cost for the VA to manage the VA loan program. The VA loan funding fee is meant to lessen the burden on taxpayers for providing VA loan insurance and keeping VA loans as a viable benefit for veterans and military folks for generations to come. The funding fee varies according to what type of loan you get, your military status, whether it’s your first VA loan, and a few other factors. Ask your mortgage lender what funding fee applies to your situation. Disabled veterans and eligible surviving spouses are exempt from having to pay the VA loan funding fee.
What the VA Does for the Home-Refinancing Veteran
1. The VA guarantees part of your loan for the mortgage company – this is basically what allows veterans to get a VA loan.
2. The VA appraises the house to determine its reasonable value in the housing market at the time the appraisal is made.
3. Ensure that all veterans are given an equal opportunity to refinance homes with VA assistance, without regard to their race, color, religion, sex, handicap, familial status or national origin.
4. VA loans have limitations on closing costs.
5. VA loans have long amortization (repayment) terms.
6. VA refinance loans, like all loans from Quicken Loans, have no prepayment penalties.
This article originally appears on the Quicken Loans Zing Blog.