How to Refinance a VA Loan

VA Loan Refinancing Options

When you refinance a VA loan, you replace your existing mortgage with a new one. Ideally, your new loan has better terms, like a lower interest rate or shorter repayment period. With VA loans, you generally have two refinancing options: the VA Interest Rate Reduction Refinance Loan (IRRRL) or a VA cash-out refinance.

VA Interest Rate Reduction Refinance Loan (IRRRL)

The IRRRL, also called the Streamline Refinance Loan, is the most popular VA refinance option. It’s available to homeowners who already have a VA loan. The IRRRL is known for being fast and easy, and requires minimal documentation, so there are fewer hoops to jump through.

The key benefits of an IRRRL include:

• No appraisal required
• Minimal paperwork
• No income verification (in most cases)
• Little to no money required at closing

An IRRRL has a number of benefits for people who already have a VA mortgage. Most notably, it can reduce your interest rate and lower your monthly payment. You can also use an IRRRL to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.

However, an IRRRL doesn’t allow you to tap into your home equity and withdraw cash. Additionally, you must use the IRRRL for a home you previously lived in, so you can’t use it to refinance a rental or investment property.

VA Cash-Out Refinance

A VA cash-out refinance lets you refinance from any loan type (VA, FHA, USDA, or conventional) into a VA loan and tap into your home’s equity by taking out cash at closing. That money can be used for any purpose.

The main advantages of a VA cash-out refinance include:

• Access cash from home equity
• Refinance from any loan type into a VA loan
• Potentially eliminate PMI if switching from another loan type

A cash-out refinance can be useful if you want to consolidate debt at a lower rate, fund a home renovation project, pay for education, or cover an emergency expense.

Costs Associated with Refinancing a VA Loan

VA refinancing isn’t free, but the VA does limit what lenders can charge. You can expect to pay the following costs when you refinance a VA loan:

• Origination fees (typically up to 1% of the loan amount)
• Appraisal fee (for cash-out refinancing only)
• Title fees
• Recording fees
• Prepaid taxes and insurance

In addition to these costs, you’ll also pay a VA funding fee. Both IRRRLs and VA cash-out refinancing loans require a VA funding fee, unless you’re exempt. You have the option to roll the funding fee into your loan. The fees are:

• IRRRL funding fee: 0.5%
• Cash out refinancing funding fee: 2.15% (first use) or 3.3% (subsequent use)

How to Refinance a VA Loan: A Step-by-Step Guide

Whether you're using an IRRRL or a VA cash-out refinance loan, the process of refinancing your mortgage is similar. Below is a step-by-step breakdown.

1. Determine Your Refinance Goals

Start by deciding what you want to accomplish with a refinance. If you want to lower your monthly payment, lock in a lower interest rate, or switch from an ARM to a fixed-rate loan, an IRRRL is going to be your best option. On the other hand, if you want to tap into your home equity, or you’re refinancing from a non-VA loan, you should choose a cash-out refinance.

2. Check Your Eligibility

To refinance a VA loan, you must meet standard VA loan eligibility guidelines.

For an IRRRL:

• You must currently have a VA loan
• You must live or have previously lived in the home

For a VA cash out refinance:

• You must meet service eligibility requirements (if switching to a VA loan)
• You must meet lender credit and income requirements
• The home must be your primary residence

3. Compare VA Lenders and Rates

VA lenders set their own rates and fees, so shopping around is important. It’s typically recommended to get quotes from at least three to five lenders. Even a small difference in interest rates could save you thousands over the life of the loan. When comparing lenders, consider these factors:

• Interest rate
• APR (Annual Percentage Rate)
• Closing costs
• VA loan experience and volume
• Whether they offer lender credits

4. Submit Your Application and Documents

Even though an IRRRL requires minimal documentation, you’ll still need to provide some paperwork, like your mortgage statement, past payment history, and proof of homeowners insurance.

If you’re doing a VA cash-out refinance, it will probably require more documentation, like pay stubs, tax returns, bank statements, employment verification, and a credit check.

5. Get a Home Appraisal (for Cash Out Refinances)

A new home appraisal is required for VA cash-out refinancing loans. The appraisal determines your home’s current market value and how much equity you can access.

For an IRRRL, no appraisal is needed.

6. Review Your Loan Estimate

After reviewing your documentation, your lender will issue a loan estimate. This statement includes important information about the new loan, including:

• Interest rate
• Monthly payment
• Closing costs
• Any cash back to you

Review the loan estimate carefully, compare it to other offers, and ask questions so you fully understand the terms.

7. Close on Your New VA Loan

The final step is to close on your new VA loan. Closing typically happens within 10 to 20 days for IRRRLs, and 30 to 45 days for VA cash-out refinances.

Here’s what typically happens at closing:

• Final loan documents are signed
• Your old mortgage is paid off
• Your new mortgage begins
• For cash-out refinances, you receive your funds (usually within a few days)

When Should You Refinance a VA Loan?

Still deciding whether you should refinance a VA loan? Here are some situations where refinancing can be beneficial:

• Interest rates have dropped
• You want to eliminate PMI
• You want cash for home improvements or debt consolidation
• You want to stabilize your monthly payments
• You want to remove a co-signer

On the other hand, refinancing might not make sense if:

• You plan to sell the home soon
• The closing costs outweigh your long-term savings
• You can’t get a lower interest rate
• Your equity is too low (for cash-out refinances)

Final Thoughts: Is a VA Refinance Right for You?

VA refinances, whether through an IRRRL or a VA cash-out refinance, can provide major benefits for borrowers. Refinancing is often a great solution if you want a better interest rate or want to access cash through your home equity.

In general, you should choose an IRRRL if:

• You already have a VA loan
• You want a lower interest rate or lower monthly payment
• You want a fast, simple refinance

Choose a VA cash-out refinance if:

• You want to refinance from another loan type to a VA loan
• You want to tap into home equity
• You want to remove PMI or consolidate debt

With the right lender and a clear understanding of your options, refinancing a VA loan can help you save money and reach long-term financial goals.

Frequently asked questions