The Department of Veterans Affairs provides VA loans through specific lenders to veterans, active-duty service members, and surviving spouses to help them purchase homes. If you have a VA loan on your house, this investment can pay off in several ways. One of the benefits of owning a home is that you can refinance your existing VA loan. Many homeowners in California who acquired their houses with VA mortgages have used this strategy to improve their financial situation.
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What is VA Loan Refinancing – California?
A VA loan is only available to active service members, veterans, and surviving spouses. This loan is insured by the government so that lenders can offer more favorable terms to borrowers, such as no down payment, lower interest rates, and no mortgage insurance premiums. If you have a VA loan on your current primary residence, you can refinance that loan. A VA refinance is typically done to help improve the borrower’s financial situation after building significant home equity.
Benefits of Refinancing Your VA Mortgage in California
The benefits of refinancing come from increased home equity. The longer you own your home and make mortgage payments on time, the larger your ownership stake. When you refinance, you create a second mortgage and get rid of the current mortgage. Typically, this is done to either lower the costs of the initial loan or to get cash from the equity.
Two Main Types of VA Refinancing
There are two main ways to refinance your VA mortgage: A VA streamline refinance and a VA cash-out refinance. Both options have financial benefits that California property owners should understand.
VA Streamline Refinance
A VA streamline mortgage is a simplified process that turns your initial mortgage into a new loan. Since you have significant equity in the home, new loan terms are created based on what you still owe for the principal balance. This second mortgage is usually made to access a lower interest rate and more favorable monthly payments.
Eligibility Requirements for VA Streamline Refinance
VA refinancing is not available with a non-VA loan, so you must have an existing mortgage on the house that is a VA product. Second, this loan must be in good standing to qualify for an interest rate reduction refinance loan. Your lender will also ensure a net tangible benefit to refinancing, which means the financial benefits of the new monthly payment are worth the closing costs involved in the process.
Potential Benefits of VA Streamline Refinance
The primary benefit of this refinance is lower monthly payments. Since you can get a better interest rate, the total loan amount and monthly premiums will be reduced. Another benefit is that you can turn an adjustable-rate mortgage into a fixed-rate mortgage, resulting in consistent monthly payments and a lower total loan amount.
VA Cash-Out Refinance
The other option you have is a cash-out refinance. VA cash-out refinances take advantage of your home equity to provide a lump sum of cash when you turn the initial loan into a new mortgage. Whatever amount is still owed on the principal, you take out a cash-out refinance loan larger than that amount, and the difference is paid to you in cash.
Eligibility Requirements for VA Cash-Out Refinance
Since a VA cash-out refinance results in a larger loan, you must meet the minimum credit score and income requirements of your lender to qualify. Additionally, you must have sufficient home equity to make the process worth it. Unlike streamline refinances, the initial loan does not have to be a VA loan for a VA cash-out refinance. You must either have a VA loan on the house or be eligible for VA loans.
Potential Benefits of VA Cash-Out Refinance
Getting cash from your home’s equity can be helpful for numerous reasons. You could use that cash to consolidate high-interest debt such as credit cards or student loans. Many California VA loan recipients will refinance and get cash to pay for home renovations. Perhaps you have a pressing need for money, and your emergency fund is drained. This type of refinancing is a great solution.
Specific Considerations for California Borrowers
The state of California has some unique circumstances for borrowers to understand in terms of their refinance options. First, property values have climbed roughly 9.7% in the past year, which could mean you have more equity in your home than you think because of property value. Second, there are technically no loan limits for VA recipients, though most lenders will have their limits if you want to turn your current loan into a new loan. Finally, if you do a cash-out refinance, your property taxes could increase if you use the money for significant home improvement projects because a new home appraisal will occur. However, if your refinance simply turns an adjustable rate into a fixed rate, then there should be no impact on the appraised value of your home.
Choosing the Right Refinance Option for VA Loans
Refinance loans are designed to give homeowners the flexibility to take advantage of home equity. If you want to refinance your current home loan, it is essential to consider your financial goals. Are you hoping to pay less each month for your mortgage and interest? Do you want more consistent payments after living with an adjustable interest rate? Then a streamline refinance makes the most sense. However, this should only be done if the change in your rate is worth the closing costs that would be involved, such as the VA funding fee.
If you would rather take advantage of your equity through a lump sum payment and a larger loan, then a cash-out refinance is the better option. Refinancing through the VA program gives you options to improve your personal finance situation.
Conclusion
Although a conventional mortgage can also be refinanced, a VA-backed loan comes with more favorable terms. VA-backed home loans can be refinanced to take out cash for home improvements or to access more favorable payments. Deciding how to refinance your VA home loan is an important decision, and with District Lending as your lender, you can make the right choice for your needs.
Contact our team today to discuss your refinancing goals. We can answer all your questions about the closing costs, the VA funding fee, how your VA loan benefit affects this second loan, and what refinance loans you qualify for.
