A Beginner’s Guide to VA Refinancing👉 Did you buy a home in 2023? Refinancing might save you money — mortgage rates are down a percentage point compared to last year’s peak. See mortgage rates this week and try our refinance calculator to see how much you could save.
What is a VA mortgage refinance loan?
A VA loan is a mortgage that requires no down payment, no mortgage insurance and is available to active-duty military, veterans, certain military spouses, reservists and National Guard members. The VA loan program, backed by the U.S. Department of Veterans Affairs, aims to help service members and veterans enjoy the benefits of homeownership.
Borrowers with an existing mortgage can refinance to a new VA loan, which comes with a new rate and a new set of terms. You may decide to refinance to get a lower interest rate, to change from a variable rate to a fixed one or to take out more money.
Eligible borrowers can also refinance to convert a conventional loan to a VA loan. VA mortgage rates are typically lower than mortgage rates for conventional or FHA loans.
Types of VA refinances
VA streamline refinance
VA Interest Rate Reduction Refinance Loans (IRRRLs), also known as VA streamline refinance loans, exist to allow VA borrowers lower their monthly payments by getting a lower rate or by changing from a variable rate to a fixed rate.
VA IRRRLs don't let you extract cash from refinancing.
VA cash-out refinance
With a VA cash-out refinance, you can replace your current mortgage with a new VA loan and take out additional cash.
For example, if you have $200,000 remaining on your mortgage and need an additional $30,000 for a home renovation, you could refinance to a $230,000 mortgage, pocketing the difference. The main advantage of a VA cash-out refinance is that you are financing multiple expenses with one loan, rather than taking out a second mortgage or personal loan. Like with an IRRRL, your rate and terms will change.
Your original loan doesn’t need to be a VA loan to refinance into a VA cash-out refinance. Other loan types (such as conventional, FHA or USDA) can also be refinanced, as long as you qualify for a VA loan.
11 lenders that appear our list of the best VA lenders offer VA cash-out refinances:
Who qualifies for a VA refinance?
If you have a mortgage and are eligible for a VA loan, you can apply for VA loan refinancing. These requirements vary depending on your service.
Active-duty homeowners: must have served at least 24 continuous months or 90 days of active service.
Veteran homeowners: must have served at least 90-181 continuous days, depending on when you served.
Members of the Selected Reserve or National Guard: must have served 90 days of active-duty service or six creditable years.
Surviving spouses of veterans: cannot have remarried before age 57 or Dec. 16, 2003.
Those who did not meet length-of-service requirements due to a service-related disability may also be eligible, as are surviving spouses of service members who are missing in action or prisoners of war.
How do I find the best VA refinance rates?
NerdWallet's mortgage rate tool can help you find competitive, customized VA refinance rates. In the filters above, enter a few details about your current VA loan. In moments, you'll get a rate quote tailored to meet your needs, without having to provide any personal information. From there, you can start the process of getting approved for a VA refinance with a lender.
What is a good VA refinance rate?
A good VA refinance rate is one with the lowest combination of rate and fees. VA refinance rates fluctuate, so a rate that's good one day may be less competitive on another.
The best way to find the lowest VA refinance rate is to compare rate quotes from multiple lenders. Maintaining a good credit score and applying to multiple lenders to compare quotes will help you get the lowest VA refinance rate.
Do VA loans have better refinance rates?
VA loans generally have lower mortgage rates than conventional and FHA loans. Your rate will depend on the lender and your personal financial details, such as your credit score.
What determines VA refinance rates?
Your rate is determined by several factors, including your credit score, amount of existing debt, the type of refinance you’re applying for and current market conditions.
Average mortgage rates fluctuate daily and are influenced by the economy's overall rate of growth, the inflation rate and the health of the job market. Unpredictable events can affect all of those factors. See NerdWallet's monthly mortgage interest rates forecast to get our take.
Pros and cons of a VA refinance
Pros
Refinance for up to 100% of the value: Qualified VA borrowers may refinance for up to 100% of the home's value, including the funding fee, if it's rolled into the loan amount.
No mortgage insurance: Even refinancing at 100%, VA borrowers don't pay mortgage insurance. Instead, you pay a funding fee.
Lenient loan qualifying standards: The VA has no minimum credit score requirement, although lenders often require credit scores of 620 or higher. When assessing affordability, the VA looks at how much money is left over after your monthly expenses.
Con
Funding fee: Although VA loans don't have mortgage insurance, they do have a funding fee that's paid at closing. The funding fee varies from 2.15% to 3.3% of the loan amount for cash-out refinances, and 0.5% of the loan amount for IRRRLs.
Learn more about VA loans:
Frequently asked questions
Your VA refinance rate will affect the overall cost of borrowing. The lower the rate, the lower your monthly mortgage payment will be.
Other costs include a VA funding fee. The fee for an IRRRL is 0.5% of the loan value, and for cash-out refinances the fee varies from 2.15% to 3.3%. (The fee is waived for some veterans with service-connected disabilities, certain surviving spouses and active-duty service members who received a Purple Heart.)
You'll also be responsible for other closing costs, such as appraisals and inspections.
To refinance using the IRRRL (VA streamline refinance) program, the new loan must have a lower interest rate or lower monthly payment. The exception is when you refinance from an adjustable-rate mortgage into a fixed-rate loan. Either way, the VA assumes that the refinance is a good idea because you're getting a lower rate or the predictability of a fixed rate.
A VA cash-out refinance requires you to pass the Net Tangible Benefit test. To pass the NTB test, the refinanced loan has to save you money or switch from an ARM to a fixed rate.
When you do a VA refinance, there's a minimum period that must elapse between loan closings. At least 210 days must pass between the closing of the original loan and the closing date of the new loan, and you must have made at least six monthly payments on the original loan. However, lenders can set their own additional standards.
Applying with multiple lenders will allow you to get a sense of your options. With a Loan Estimate from each lender compared side-by-side, you'll be able to see which lender is giving you a good mortgage rate combined with the lowest origination fees.
About the author: Holden is NerdWallet's authority on mortgages and real estate. He has reported on mortgages since 2001, winning multiple awards.
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