Can You Refinance a Home Purchased With a VA Loan

By David Rouse

Homeowners with home loans guaranteed by the U.S. Department of Veterans Affairs may refinance their home mortgages just like any other mortgage. Just because a veteran purchases the home using his VA benefits does not require him to refinance the loan into one of the VA loan products. Veterans often use their VA home loan guaranteed benefit because they have little or no down payment when they purchased their home. Once the buyer gains equity in the home, a VA loan may not be the best choice.

VA offers one loan program that is only available to veterans who currently have a loan guaranteed by VA. The Interest Rate Reduction Refinance Loan provides a streamlined avenue for veterans to refinance their current VA mortgage. This loan program requires the new loan save the veteran money and does not allow the veteran to receive any funds at closing. As long as there is a benefit to the loan and the new loan amount does not exceed the existing loan's maximum amount, an appraisal is not required for the refinance.

Veterans may refinance into a conventional rate and term refinance. Rate and term refinance mortgages allow the veteran to change the interest rate and the loan terms, such as the amortization or type --- from an adjustable rate to a fixed rate, for example. Conventional rate and term refinances allow the veteran to receive up to the lesser of 2 percent of the loan amount or $2,000 back at close. VA mortgages require the veteran pay or finance the VA funding fee. Conventional loans do not require any sort of loan guarantee payment or insurance as long as the loan does not exceed 80 percent of the home's value.

Veterans may also refinance their VA home loans through conventional cash-out refinances. Cash-out refinances allow homeowners to access to the equity in their homes. Veterans may withdraw the equity to use however they see fit. They may choose to use the money to pay off debts, pay for college, take a vacation or make improvements to the home.

VA home loans do not require mortgage insurance premiums; instead, they require a VA funding fee at closing. Since many VA home loans required little or no down payment, the homeowner only builds equity through appreciation of the home and principle payments made with the monthly payment. Often, homes with VA mortgages have lower equity percentages than other homes financed with other types of loans. Refinancing a VA home loan into a conventional home loan may require mortgage insurance if the new loan will result in the homeowner having less than 20 percent equity in the home.

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