The Ultimate Guide to VA Loan Refinancing

The VA loan is a phenomenal loan product. So now if you had the pleasure of using the VA home loan, there's some additional treats in store for you, which is what's called an interest rate reduction refinance loan. It's a streamlined refinance basically, and it's phenomenal because it allows you to drop an interest rate on your VA home loan with relatively little to no work, no appraisal. You just need to verify a source of income. And then also you can add and remove people from that during that process of an interest rate reduction refinance loan. So I'm gonna cover all of that in today's video. Now, another cool part that if you do an interest rate reduction refinance loan, it doesn't make a difference if you turn that VA home loan into a second home or an investment property, you can still take advantage of the lower interest rate because really occupancy is not gonna make a difference for the rate. So that being said, obviously there's a ton of positive stuff, but the thing is you have to understand what are some of the downsides to it. And right now we've been getting a lot of calls from clients, past clients saying that, look, I got this letter in the mail, I could save money on my monthly mortgage payment. But a lot of times I've been looking at these and they just absolutely do not make sense right now. Just because when you save the minimum amount required, which is a half a percent on the interest rate, the fees get rolled into the mortgage, basically ticking up that mortgage balance, number one. And then the other part to that is they also reset the clock for the 30 years, right? So the way that you wanna be able to look at that is gonna be breaking down the cost and how that works. Now, another caveat is that with the VA funding fee, they do charge with a half a percent for the VA funding fee. Now, if you collect a 10% or greater VA disability compensation, then you don't pay for that. Now, when you originally, let's say, did your mortgage and you were charged a funding fee because you didn't have the service connection, now that you've gotten it, then you are able to refinance without it. And just know, if you've already started the process on your VA disability compensation and you do an EARL, get charged the fee, and as long as the rating is backdated prior to closing on your VA home loan, then you can get a refund from the VA for that refinance. This also applies when you purchase the property. So keep that in mind as you go through this process. So now, let's talk about closing costs and what really goes into them. So lenders charge origination fees. They also charge discount points, which technically, they can charge up to 2% in discount points on these loan products. The VA does have something in place to help protect veterans from equity stripping, which is something that was done by a lot of big mortgage companies that got sued for that. This was a while ago, so the VA basically came out and said that when you close on a VA loan, it doesn't make a difference if it's cash out refinance, you purchase the property, that you have to wait a minimum of six months from your first mortgage payment and you can't pay ahead of time because it's gonna be based on your closing date, and then your payment's gonna be based from there, your first payment date. And then you also have to wait 210 days from that first mortgage payment to actually close on the mortgage, so they have that little caveat in there. Now, the other part that they protect you with is that one, like I mentioned earlier, is the rate has to drop at least a half a percent in order to qualify. The other big one is that you can't have, how do I explain this? There's 36 month recoupment period. Basically, what that means is that if you save $100 a month on your monthly mortgage payment, closing costs or the fees can't be more than $3,600, which makes sense, but that takes a three-year recoupment period. And again, remember, you're refinancing at a higher balance because they're rolling in the closing costs, so you gotta really make sure, like, does it make sense for you to do that? One thing to note with calculating how to calculate what that payment's gonna be is I always look at the interest associated with the loan. So let's say you have 25 years left on your mortgage. So basically, what you would do is you wanna figure out how much remaining payments and interest you have left on your mortgage, and then you're gonna take the new mortgage, and same thing, you're gonna take the 30 years or 360 months times your monthly payment. It's gonna show you how much total interest you're gonna be paying. So obviously, you wanna be paying less. That's why, when people are like, well, I wanna refinance into a lower rate, does it really make sense from a financial position to be able to do that? Yes, it's exciting to get lower rates. Well, listen, when rates dropped to two and a quarter, yeah, it totally made sense to refinance because people dropped, like, two, three, four, 5% in payment, in interest, which greatly affected their payments. A half a percent isn't that much, maybe on, like, a million and a half dollar deal, but again, it's really gonna be subject to your finances and what they look like and what state you're in because closing costs are going to vary based on the state. In some states, it's as little as $1,000 to refinance. That's like I'm talking hard costs like title fees. A lot of times, you know, lenders will charge origination discount points, we don't, so if you're interested, please feel free to schedule an appointment with us, happy to walk you through it and tell you if it makes sense or not. We've had viewers reach out and a lot of times, you just tell them, like, look, you're in a good spot, yeah, you got some solicitation in the mail and it just didn't make sense, so we wanna make sure that whatever you're doing makes financial sense for you and your family because all that is gonna make an impact on your affordability, how you live your day-to-day life. So again, if you guys have questions, please ask us. Another piece with that too is with closing costs being rolled in, the max you can get back at closing is $500. Now, that is kind of tough to be able to automatically predict how much it's gonna be. That's why you see the loan amount shifting so much as you go through that process. Another thing that I wanna mention is that, like, let's say, I'm gonna use an example. I love Florida, but they definitely have the highest fees for a reason. It's because you have to pay transfer taxes just like you did when you bought the home on a refinance. So again, if you're adding $10,000 to the balance, does it make sense to do it from an overall cost perspective? Now, let's go through some of the nuances and what lenders actually need in order to make this happen. So I've mentioned your six on-time mortgage payments. 210 days from your first payment date, so basically after the seven-month mark, you can close on your property. The rate has to drop a half a percent. The only exception to that is when you have an adjustable-rate mortgage and you wanna get into the fixed rate. We talked about the 36-month recoupment period, which basically you wanna be able to cover the closing costs within that timeframe, the 36 months, but again, we obviously would like to see it a little bit lower so you could take big advantages of that VA home loan. Another key component to this is that when you do the interest-rate reduction refinance loan, and let me give you an example. Let's say the original balance was $500,000. Today, it's $400,000, and you do an interest-rate reduction refinance loan. You still have $500,000 of your entitlement locked into that property. You do not free it up when your balance goes down and you refinance at the lower balance. It could be that you could have a half a million dollar original price, and today you refinance for 100,000. You still have $500,000 locked into that property, which, again, makes a significant impact and difference for you when you're looking at that mortgage and the factors that go into it. Now, I'm gonna explain to you guys what type of parties, obligations of people can be added to a interest-rate reduction refinance loan or not. Another thing that lenders can do as well, I didn't mention this earlier, is that you can actually do a soft credit check in order to do an interest-rate reduction refinance loan, so it doesn't even require you doing a full credit check, which I think is awesome, and it definitely lends itself to a lot of opportunities, right? So now let's talk about your current, or let's say your prior situation and your new current situation. Is it possible to do an interest-rate reduction refinance loan? So let me walk you through it. So if you're a veteran and you originally purchased the property by yourself, but now you're married and you wanna do an interest-rate reduction refinance loan, so yes, you can add your spouse and still be able to do an EARL. I'm gonna back up one second. One thing I didn't mention is that the source of income is the only thing that you need to verify to do the EARL, right? So they look at your credit, they look at the middle score, they're going to look at, do you have a source of income? So you could have a million-dollar place, 10% service connection, and they will use that 10%, maybe it's like 170 bucks, to actually qualify you for that entire million-dollar property. So it's just a source of income. So it's pretty straightforward to do these, and that's why I think a lot of lenders like doing them. So let's talk about if a veteran and a spouse are on the mortgage, but the veteran is gonna be on their own because they received a divorce, yes, the veteran can do the loan, an interest rate reduction refinance loan, I just started saying EARL for now to make life easy, in order to be able to refinance and do that and basically remove their spouse, a veteran and a spouse, but they got a divorce and now they have a new spouse, same thing, you can do an EARL. So it makes it pretty cool. So we have a veteran and a spouse, the spouse alone, because the veteran has passed away, yes, you can do an interest rate reduction refinance loan, a veteran and a non-veteran joint loan loan that was originally done, the veteran alone can refinance with an interest rate reduction refinance loan. Now let's talk about the things that you cannot do. So a veteran and a spouse where the divorced spouse alone is on the mortgage, they cannot do an interest rate reduction refinance loan, a veteran and a spouse where you have a different spouse alone where the veteran has passed away, no, you cannot do an interest rate reduction refinance loan and then you have a veteran and a non-veteran joint home loan obligation, the non-veteran cannot do an interest rate reduction refinance loan. Hopefully you guys learned some good stuff today. If you have questions, please feel free to reach out to us, drop a comment down below, always happy to do videos around the things that you guys are interested in. So I'll catch you guys soon.