As we begin 2015 a wave of VA refinance activity in Orange County, CA that started in the last quarter of 2014 is continuing. There are several different types of VA refinances and different reason for each type of refinance.
Different Types of VA Refinance Loans
- VA IRRRL – also known as the VA Interest Rate Reduction Refinance Loan, or VA Streamline Refinance. This program is strictly for someone who already has a VA loan and is looking to lower their interest rate and payment. The VA loan program has been widely utilized in Orange County over the past few years as a great way to buy a home with no down payment. With a drop in interest rates many VA borrowers are finding that the VA IRRRL program is an easy way to lower their payment. Most lenders do not require an appraisal for this program. There is no income documentation, no termite inspection. It is a very “streamlined” program where most lenders can even use a lender credit to cover all closing costs and prepaid expenses. It doesn’t take much of a drop in interest rates for this program to be utilized.
- VA Cash out Refinance – when a current VA borrower wishes to pull some equity out of their home then the IRRRL program is not an option. The loan is then a “cash out refinance”. A full appraisal is needed, along with a clear termite report. This is a fully qualifying loan. But for those who are planning to use the cash to consolidate other debts or improve their home a VA cash out refinance is a great option. VA allows the borrower to pull cash out up to 100% of the appraised value. VA is the only type of loan program that allows for 100% cash out financing, making this a very popular loan option.
- Non VA to VA Refinance – You don’t have to have a VA loan to refinance into a VA loan. (you do for the IRRRL program, but not for a non-IRRRL). For someone with a Conventional or FHA loan who wants to either refinance to lower their rate and payment, or refinance to pull cash out for home improvements and debt consolidation, the VA program can be an excellent option. Conventional financing can get expensive when the loan to value is higher than 80%. For an Orange County homeowner with less than 20% equity who wants to avoid paying mortgage insurance, the VA program offers a great solution. VA does not have monthly mortgage insurance and tends to have very aggressive 30 year fixed interest rates. And of course, it is the only way to actually pull cash out up to 100% of the properties value. Plus, once in the VA loan you will be eligible for a VA IRRRL if rates go lower, which is the easiest way to lower your interest rate (for those who are eligible.)
Important Things to Know When Refinancing into a VA Loan
There are some things that are different about the VA program compared to other types of financing. For one, the borrower needs to be an eligible Veteran. The lender can help retrieve the Certificate of Eligibility from VA. Also, below are things to know about the VA program.
- The VA loan limit in Orange County for 100% financing is $625,500 (2015 loan limit). This means it is possible to refinance a VA loan up to $625,500 at 100% loan to value. For those who already have a VA loan, they can take advantage of the VA IRRRL program even if their current VA loan is above that limit. The VA loan limit does vary from county to county, so its important to talk with an experienced VA loan specialist who can make sure you are calculating your loan amount correctly.
- The VA Jumbo loan is a great option for loan amounts above the 100% loan limit of $625,500. Some lenders will fund VA loans as high as $1,500,000. Some equity is required when going above the 100% loan limit, but not much, especially when compared to other types of financing.
- A clear termite report is required for non-IRRRL VA refinances. Section 1 items on the report will need to be signed off, and quite often Section 2 items will also need to be cleared.
- The VA Funding Fee for IRRRL’s is .5% of the loan amount (unless the Veteran has a disability waiver). The VA Funding Fee for non-IRRRL refinances will range from 2.15% to 3.3%, depending on whether the VA borrower has used their VA eligibility for a VA loan previously. The Certificate of Eligibility from VA will determine what the Funding Fee percentage will be. In some cases the lender may be able to offer an option where a lender credit can offset the VA Funding Fee.
- It can take less than 30 days to close a VA refinance, provided the VA borrower quickly forwards the requested loan documentation to the lender.
The first step in determining whether it makes sense to refinance into a VA loan or take advantage of the VA IRRRL program is to talk with a local Orange County VA loan specialist. The VA loan officer should be able to provide several custom VA loan scenarios, along with a Video explanation of the loan options. Working with a lender who makes sure you are making an educated decision based on your long and short term financial goals is extremely important, since your home will be one of the biggest financial purchases you will make.
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. I prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.