It is possible to refinance a Cal-Vet home loan. You just have to do it into a new VA home loan. One of the downsides of the CalVet home loan program is that you cannot refinance when interest rates drop. While the VA home loan programs offers one of the best refinance options around, the Interest Rate Reduction Refinance Loan, or IRRRL, CalVet is available only for purchases.
Why CalVet will not Allow a Refinance
When a home is purchased using a CalVet loan, it is actually closed using a Contract of Sale. This is different than a standard loan closing. With a Contract of Sale, it is actually CalVet who purchases the property you select and then takes legal title to the property at the close of escrow. CalVet then turns around and sells the property to the Veteran using the Contract of Sale. CalVet can’t refinance the current loan according to both federal and state laws. Also, because the interest rate is tied directly to the tax exempt bond used as the funding source of the home, the borrower is locked into the interest rate, even if rates drop.
Refinance into a VA Home Loan
The solution is to refinance into a VA home loan. This will not be an IRRRL, since an IRRRL is for current VA home loan borrowers refinancing into a new VA loan. But once a CalVet borrower completes the refinance, they would then be able to take advantage of the IRRRL program if rates dropped further. The initial refinance will be a full income documentation program. An appraisal is required and the loan cannot be more than 100% of the property value.
Reasons Why a CalVet Borrower Would Want to Refinance
- To pull cash out for home improvement or debt consolidation. Property values are on the rise, which means many CalVet borrowers now have equity in their home. They can refinance into a VA loan to pull cash out for home improvements or debt consolidation. While many lenders cap the loan to value for cash out refinances at 90%, there are some lenders who will allow cash out up to 95% of the properties value.
- Lower their interest rate and payment. For several years the CalVet interest rates were in the 5% and above range. VA home loan interest rates adjust based on the current market, which has been low over the past few years. However, property values had made it difficult for a CalVet borrower to take advantage of the low rates if they didn’t have equity in their home. Now, many CalVet borrowers do have equity and can finally take advantage of the low rates.
First Step in Determining if a CalVet Refinance is Right for You
The first step in determining whether a refinance from a CalVet loan into a VA home loan makes sense is to contact a California VA home loan specialist. The VA home loan officer should be able to prepare custom loan scenarios with details on the new loan amount, payment, and closing costs involved in a refinance. Many times there can be a lender credit which will offset some or all of the closing costs. It is important that the Veteran understand the loan process before starting the refinance. A clear termite report will be required. Also, a VA Funding Fee is required, except for those Veterans who have the disability waiver (10%). The loan officer will be able to review all options and educate the Veteran on the pro’s and con’s of a refinance.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com