How Soon Can You Refinance a VA Loan?
Refinancing a home loan allows homeowners to replace their existing mortgage with a new one under different terms. For VA-backed home loans, refinancing can provide lower interest rates, reduce monthly payments, or allow you to tap into cash from your home equity to use for major expenses. However, there are wait times, or “seasoning” periods, that you must undergo between getting your VA loan and refinancing it with a VA Cash-Out Refinance or an Interest Rate Reduction Refinance Loan.
- The U.S. Department of Veterans Affairs allows veterans, service members, and their families to refinance their home loans, replacing their existing mortgage with a new one under different terms.
- Refinancing your VA home loan can offer benefits such as lower interest rates, more stable monthly payments, and access to liquid cash for debt consolidation or other major expenses.
- Depending on the type of VA refinance you choose, you may need to wait 6-12 months from the due date of your first mortgage payment before you can refinance a VA home loan.
How Long Do I Need To Wait To Refinance My VA Loan?
Loan “seasoning” is the required waiting period before homeowners can refinance their VA loan. The seasoning period ensures that veterans are financially stable for refinancing, and its length depends on the type of loan they choose.
For an Interest Rate Reduction Refinance Loan, or IRRRL, veterans generally must wait at least 210 days from the first payment due date of their original loan and timely make at least six consecutive monthly payments before they can refinance. For a VA Cash-Out Refinance, there’s no set waiting period, but most lenders prefer at least six to 12 months of payments on your current loan before refinancing.
VA IRRRL Seasoning Requirements
If you have an existing VA-backed home loan and want to reduce or stabilize your monthly mortgage payments, an IRRRL may be a good refinancing option for you. You may be eligible for an IRRRL if you already have a VA-backed home loan, plan to use the IRRRL to refinance the existing VA loan, and can certify that you currently live in or previously resided in the home covered by the loan.
An IRRRL or “streamline” refinance can help you lower your monthly mortgage payment through a lower interest rate or make your monthly payments more stable by moving from a loan with an adjustable or variable interest rate to a fixed interest rate. With an IRRRL, you also can roll your closing costs into the new loan, so you don’t have to pay up front.
To get an IRRRL, you must wait at least 210 days from the first payment due date of your original loan and make at least six monthly payments on that loan.
VA Cash-Out Refinance Waiting Periods
A VA-backed cash-out refinance loan lets you replace your current loan with a new one under different terms so you can take cash out of your home equity. This move will help you settle high-interest debt, pay for school, make home improvements, or address other financial needs.
Cash-out refinances can also be used to refinance a non-VA loan into a VA-backed loan. To be eligible, you must qualify for a VA-backed home loan Certificate of Eligibility, meet the VA’s and your lender’s standards for credit and income, and live in the home you’re refinancing. While the VA does not set a seasoning requirement for cash-out refinances, most lenders prefer that homeowners make six to 12 monthly payments on their original loan before refinancing.
Eligibility Criteria for VA Loan Refinancing
For both types of VA refinances, there must be a clear, tangible benefit to the borrower, such as a lower interest rate or monthly payment, switching from an adjustable-rate mortgage to a fixed-rate mortgage, or a shorter loan term. Other eligibility requirements for refinancing with a VA loan include:
- Seasoning requirements: 210 days and six monthly payments for an IRRRL, six to 12 months of payments for a cash-out refinance
- Clear financial benefit from refinancing: Reduced monthly payments, improved financial health.
- Service requirements: Veteran or active duty service members, and certain qualifying surviving spouses
Other Key Considerations When Refinancing a VA Loan
There are several important factors to consider when determining when or how to refinance your VA home loan. You may want to refinance as soon as possible if interest rates have dropped significantly since you got your loan. Refinancing is also a good option if you need to switch to a fixed-rate mortgage or need access to your home’s equity for major expenses.
- Interest Rate Considerations: It is usually only financially advantageous to refinance when interest rates drop by at least 1% from the time you closed on your original loan.
- Closing Costs: Be aware of closing costs when refinancing a loan because they can add up to thousands of dollars. The costs associated with refinancing a VA loan include the VA funding fee, which is generally 0.5% for IRRRL and from 2.15% to 3.30% for a Cash-Out loan. However, you may be able to roll these costs into your loan to pay them over time.
- Loan Terms: When refinancing a VA-backed home loan, you may have options for changing the term of your loan by making it shorter or longer. A shorter loan term will result in higher monthly payments, but lower interest paid overall. A longer loan term will result in lower monthly payments, with more interest paid over time.
- Debt-to-Income Ratio: Refinancing can impact a borrower’s debt-to-income ratio, which lenders typically consider.
It may be better to put off refinancing if you haven’t built much equity in your home or your credit score hasn’t improved significantly. Waiting to refinance also makes sense if you’re planning to move in the near future or if the costs of refinancing outweigh the potential savings.
How Refinancing a VA Loan Can Benefit You
- Lower Monthly Payments: Refinancing can lower monthly payments by offering lower interest rates.
- Fixed vs. Adjustable Rates: Refinancing enables veterans to transition from an adjustable or variable-rate mortgage to a fixed-rate mortgage, stabilizing their monthly mortgage payments.
- Tapping into Home Equity: A VA Cash-Out Refinance enables veterans to leverage their home equity for various financial needs, including debt consolidation and home repairs.
- Mortgage Insurance: VA-backed home loans do not require private mortgage insurance, so refinancing your conventional loan into a VA home loan can eliminate this cost.
Common Questions About VA Loan Refinancing
Can I Refinance My VA Loan More Than Once?
You may be able to refinance your VA home loan multiple times, depending on your financial circumstances and the loan’s seasoning requirements.
Can I Refinance a Non-VA Loan Into a VA Loan?
A VA Cash-Out Refinance enables veterans to refinance their conventional loans into VA-backed home loans, provided they meet the necessary criteria, including obtaining a Certificate of Eligibility.
How Much Does It Cost To Refinance a VA Home Loan?
Refinancing involves taking out another loan to replace your current loan, which means you’ll likely have to pay some closing costs.
Need Assistance Refinancing Your VA Loan?
Refinancing your VA home loan can provide numerous benefits, including lower monthly payments, lower interest rates, and the ability to tap into your home equity for immediate, major expenses. However, there are seasoning and eligibility requirements for VA loan refinancing. Veterans should assess their financial situation and consult with a VA-approved lender to determine the best time for refinancing their mortgage.
