How to Refinance as a Veteran

By Don Rafner

If you are a veteran of the U.S. military who is already paying down a mortgage loan backed by the U.S. Department of Veterans Affairs -- loans better known as VA loans -- you can refinance through an Interest Rate Reduction Refinancing Loan (IRRRL). Also known as VA streamline loans, an IRRRL allows military veterans to switch their current mortgage loan to one with lower interest rates. This is important: Depending on the size of your home loan, you can save hundreds of dollars each month by shrinking its interest rate.

Call several mortgage lenders to ask about the interest rates and fees they charge for an IRRRL. Though these loans are backed by the U.S. Department of Veterans Affairs, traditional mortgage lenders actually do the work of refinancing existing VA loans. You don't have to work with the lender currently servicing your loan; you can refinance through any lender who is licensed to work with VA-backed loans.

Tell your lender that you want to refinance your existing VA loan with an IRRRL. Make sure that you will not receive any cash back when the refinance closes. If you do, you will no longer be eligible for an IRRRL.

Make copies of the financial statements that your lender will use to verify your gross monthly income and monthly debts. These include your credit-card statements, investment statements, bank savings and checking account statements, most recent paycheck stubs and current federal income tax return. Send these documents to your lender by mail, e-mail or fax. Your lender will want your monthly debts, including your estimated new mortgage payment, to be no more than 36 percent of your gross monthly income.

Giver your lender your OK to run your credit. Your three-digit credit score is important. Lenders use it to determine what interest rates to charge you. In general, lenders reserve their lowest interest rates for borrowers who have credit scores of 750 or higher. If your score is too low, you might not qualify for the lowest interest rates. This could eliminate the financial usefulness of a refinance.

Sign the paperwork that your lender requires to close your loan. At this time, you must also pay your loan closing and origination fees. You'll also have to pay a funding fee of one-half of 1 percent of the total loan amount. This fee is the only one required by the Department of Veterans Affairs. You can pay your fees upfront or by rolling them into your monthly loan payments.

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