Curve

How to tap into today’s VA refinance rates with almost no paperwork

Peter Miller
The Mortgage Reports contributor

VA refinance rates: ultra-low rates and almost no documentation needed

VA refinance rates have fallen nicely since the end of last year. They’re also a bargain when compared with other mortgage options.

Figures from loan software firm Ellie Mae tell us that VA rates moved from 5.01% in December to 4.20% in June. That’s a full 0.8% decline. The VA’s 4.20% is lower than FHA financing (4.49%) and conventional mortgages (4.41%).

And VA rates have fallen much further since Ellie Mae’s last report in June.

VA mortgages get especially interesting when it comes to refinancing. VA streamline refinance rates are low and paperwork requirements are next to zero.

  • No appraisal
  • No W2s or pay stubs
  • No tax returns
  • No bank statements

Veterans can get a new mortgage rate weeks or even months faster than their non-veteran counterparts.

Get started on your VA streamline refinance now. (Dec 9th, 2019)

VA refinancing options

Under the VA program, qualified borrowers can refinance for two reasons.

First, you can refinance to obtain a rate and term refinance. The VA calls such loans an “IRRRL” or an “interest rate reduction refinance loan.” This means the loan amount stays the same but your monthly costs go down, you switch from adjustable-rate to fixed-rate financing, or both.

Second, you can refinance to get cash from your property. With a cash-out refinance you walk away from closing with a check. But these loans require more paperwork. Just want to reduce your rate? Go with a standard VA refinance.

VA refinance rates: removing the paperwork requirement

VA refinancing is about as close to paper-free as you can get. No W2s, no pay stubs, no tax returns, no bank statements.

But the question is this: Why does the VA allow refinancing with so little documentation? The answer is that the VA and lenders already have a lot of documentation in hand.

To get VA financing you must be VA-qualified. That means you need a VA Certificate of Eligibility, something which can be obtained through lenders, online through the VA, or by mail.

However, you’re not getting a loan for the first time. You’re refinancing. The VA already has your certificate of eligibility. Likewise, you already income-qualified as well. The VA simply assumes that nothing has changed with your income picutre.

Avoid typical refinance homework

That’s not all. To refinance through the VA you generally don’t need an appraisal, pay stubs, W2s, tax returns, or bank statements.

Okay, so why don’t you “generally” need the usual paperwork? Are there some cases where you might need paperwork?

To refinance through the VA you generally don’t need an appraisal, pay stubs, W2s, tax returns, or bank statements.

The VA does not require the documentation demanded under most other loan programs. However, it allows lenders to establish their own underwriting criteria. Lenders – not unreasonably – are risk-averse. They want to make sure that all borrowers have the ability to repay their loans. Lenders also want to be certain that borrowers get a “material benefit” when they refinance. The result is that lender paperwork requirements vary. As a VA borrower, it makes sense to ask lenders about their paperwork requirements before refinancing.

Okay, but WHY doesn’t the VA have all kinds of paperwork demands?

Ask lenders about their paperwork requirements before refinancing.

When a borrower buys a home and first finances real estate the lender looks for as much documentation as possible to support the loan application. That’s the reason for lots of questions and paperwork.

However, with a VA refinance the story is different. The borrower already has financing. There is an established payment record. The VA and lenders know who’s been financially naughty and nice. A VA lender doesn’t really need a credit report, they can simply check your mortgage payment history.

Verify your new rate (Dec 9th, 2019)

Can you use a VA streamline refinance if your payment is increasing?

The VA loves to see an interest rate reduction refinance loan. With an IRRRL the size of the debt stays the same but monthly costs generally decline. There are situations where the monthly mortgage payment can rise but they are restricted according to the VA.

  • The IRRRL is refinancing an ARM,
  • Term of the IRRRL is shorter than the term of the loan being refinanced, or
  • Energy efficiency improvements are included in the IRRRL.

The VA says a significant increase in the veteran’s monthly payment may occur with any of these three exceptions, especially if combined with one or more of the following:

  • Financing of closing costs,
  • There is financing of up to two discount points,
  • Financing of the funding fee, and/or
  • Higher interest rate when an ARM is being refinanced.

If the monthly payment goes up by 20% or more the VA requires a special lender certification explaining why the payment is increasing so much.

Funding fee waiver

There’s generally a 0.5% upfront funding fee with an IRRRL.

There are situations where the funding fee is waived. According to the VA, a borrower does not have to pay a funding fee if you are a:

  • Veteran receiving VA compensation for a service-connected disability, or
  • A veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, or
  • Surviving spouse of a Veteran who died in service or from a service-connected disability

VA cash-out refinance

While a VA rate-and-term refinance is the favored option, it is possible to get a VA cash-out refinance as well. This is a useful way to get cash from increased home equity. If a home’s value has grown from $250,000 to $350,000, there’s as much as $100,000 in new equity which is potentially available to the vet.

The VA cash-out refinance requires more paperwork than an IRRRL to protect vets from being overcharged. In December the VA instituted a number of new standards for the cash-out program.

Seasoning. To prevent excessive fees from repeated refinancing the VA will no longer allow a VA cash-out refinance unless at least six monthly payments have been made and at least 210 days have passed after the first monthly payment.

Excess loan costs The VA wants to prevent excess loan fees. It will not allow a cash-out refinance if fees, closing costs, expenses, and other costs cannot be recovered through loan savings within 36 months.

Net benefit test: making sure the borrower can afford the loan

A borrower cannot obtain a VA cash-out refinance under the new rules unless it produces a net benefit. There are eight benefits acceptable to the VA.

  • The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty insurance.
  • The term of the new loan is shorter than the term of the loan being refinanced.
  • The interest rate on the new loan is lower than the interest rate on the loan being refinanced.
  • The payment on the new loan is lower than the payment on the loan being refinanced.
  • The new loan results in an increase in the borrower’s monthly residual income.
  • A new loan refinances an interim loan to construct, alter, or repair the home.
  • The new loan amount is equal to or less than 90% of the reasonable value of the home, or;
  • The new loan refinances an adjustable-rate loan to a fixed-rate loan.

VA cash-out refinance funding fees

Funding fees for a VA cash-out refinance are a percentage of the loan amount, and look like this:

  • Regular military, first use: 2.15%
  • Guard/Reserves, first use: 2.4%
  • Regular military, subsequent use: 3.3%
  • Guard/Reserves, subsequent use: 3.3%

As above, funding fees can be waived for qualified individuals.

What are today’s VA refinance rates?

VA refinance rates are at historic lows, and even veterans with low rates are again interested in refinancing.

Capture a rock-bottom rate before VA interest rates rise.

Verify your new rate (Dec 9th, 2019)