Refinancing Through the Veterans Administration

By Matt McGew

The Veterans Administration (VA) is in charge of protecting the welfare of veterans that have served in the United States armed forces. In addition to offering health care and many other services, the VA provides insurance on home loans issued by private lenders. This insurance allows private lenders to issue VA loans. These loans generally offer lower interest rates and better financing terms than other conventional home loans. If your original mortgage was not with the VA and you qualify, you can refinance into a VA loan.

Approval for a VA loan requires a certificate of eligibility. This document, known as Form 26-1880, lists your military service record and any VA loans you have taken out in the past.

The VA Loan Guaranty Service manages the home loan program for veterans and active members of the military. The Interest Rate Reduction Refinancing Loan (IRRRL) gives homeowners with a VA loan an opportunity to refinance their loans and get a better interest rate. This special loan typically requires less paperwork than traditional refinances. Most lenders only require a current appraisal of your home's value and a credit report to process this type of loan. With an IRRRL, you can't receive any type of cash-out from the refinance. You do, however, have the option of including the closing costs in the loan in lieu of paying these costs out-of-pocket at the time of refinancing.

The Veterans' Benefits Improvement Act of 2008 has several provisions that benefit the Home Loan Guaranty Program and the refinancing of your VA loan. The act extended and improved adjustable loan mortgages (ARMs) and cash-out refinancing options. Under the act, cash-out loans no longer have any limitation or restrictions as they did under IRRRL. Additionally, up to 100 percent of the appraised value of the property is now available for refinance. The former cap of $417,000 on refinance loans was also lifted under the act. The new limit is now $729,750.

Qualifying for a VA loan doesn't mean you automatically get a great loan. It's your responsibility to find lenders that have the best rate for your VA refinance loan. Shop around with multiple private lenders to get the best available rate. Make sure that you also consider closing costs and fees associated with your VA refinance loan. Many private lenders offer fee reduction programs and special interest rates for VA loans.

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