Va Loans Vs Conventional Loans
Borrowers with good credit and at least a 20% down payment often choose conventional loans to buy or refinance homes. However, there are conventional loan programs that require down payments as low as 3%, if you cant or simply dont want to use your VA loan eligibility. Heres how these two loan types stack up side by side:
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Eligibility for various disability housing grant programs, including:
- Specially Adapted Housing or Special Home Adaptation grants, which offer up to $101,754 and $22,036, respectively, to help disabled veterans buy or improve a house they already own to make it more accessible.
- Temporary Residence Assistance grants, which provides up to $40,983 to veterans to make accessibility alterations to a home owned by a family member.
- Home Improvements and Structural Alterations grants, which provide up to $2,000 for veterans with non-service-connected disabilities and up to $6,800 for veterans with service-connected disabilities.
Refinance Waiting Period By Loan Type
Now lets discuss specific refinance waiting periods by loan type and transaction.
Conventional Loans
If were talking about a standard conventional mortgage, such as those backed by Fannie Mae and Freddie Mac, you can refinance almost immediately if the new loan doesnt result in cash out.
In other words, if youre simply executing a rate and term refinance, where the interest rate and/or term of the loan changes, its generally fine to refinance right away.
But if you want to tap into your equity via a cash-out refi, there is a six-month waiting period.
This prevents borrowers from underpaying for properties and then immediately sucking out the equity at a new inflated price.
However, there are some exceptions, such as if the property was inherited or legally awarded via divorce, separation, etc.
Theres also the delayed financing exception, whereby a cash buyer can execute a cash-out refinance if they purchased the subject property within the past six months.
But really the homeowner is just getting their initial investment back, less any down payment requirement associated with the mortgage they take on .
When it comes to government loans, the rules are a little different.
FHA Loans
If you want to do a rate and term refinance on one FHA loan to another FHA loan , the waiting period is 210 days and six monthly mortgage payments must have been made.
In essence, most borrowers will need to wait at least six months to go from one FHA loan to another.
USDA Loans
VA Loans
Has Your Credit Score Improved
Because your mortgage interest rate is determined partially based on your FICO credit score, if you know that your credit score has improved considerably since your mortgage loan was signed it makes sense to consider refinancing your mortgage. The improved credit score should offer a better interest rate. The good news is that being approved for a mortgage can improve your credit score over time, as long as you make regular payments.
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Who Qualifies For A Va Loan
For those who are eligible, VA loans are attractive because they dont usually require a down payment. They also have lower interest rates than many other types of mortgage loans you can get for similar terms. They dont have monthly mortgage insurance.
Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage programs. That means qualifying for one should be easier, even if you have a poor credit history or small down payment.
Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:
- Youve served 181 days of active service during peacetime.
- Youve served 90 consecutive days of active service during wartime.
- Youve served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.
- Youre the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions, as well as other requirements for a spouse getting a VA loan.
Wartime or peacetime definitions depend on when you served. For more information, see the VAs eligibility guidelines.
How Soon Can You Refinance A Mortgage
Maybe you just bought a house, or even refinanced recently. But it might not be too soon to refinance again.
Many homeowners can refinance into a lower-rate loan with no waiting period. And others need to wait as little as six months. So theres a good chance youre eligible to refinance at todays rates.
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Eligibility Requirements For Va Home Loan Programs
Learn about VA home loan eligibility requirements for a VA direct or VA-backed loan. Find out how to request a Certificate of Eligibility to show your lender that you qualify based on your service history and duty status. Keep in mind that for a VA-backed home loan, youll also need to meet your lenders credit and income loan requirements to receive financing.
Information For Va Home Loan Borrowers During Covid
Below are some frequently asked questions for Veterans regarding the VA home loan policies related to the COVID-19 emergency:
The number one priority for anyone financially affected by COVID-19 is to ensure the health and safety of you and your family. Next, . Your mortgage company offers free, expert assistance. While you might be worried about letting your mortgage company know about your financial hardships, your mortgage company is there to help you, and it is to your advantage not to wait, but to call them as soon as possible.
If youre nervous about contacting your servicer, or if youd like our help and advice, please contact a VA loan technician at or . When contacting a VA loan technician at , please provide the name and address on the loan.
2. What protections do I have for my VA loan while the COVID-19 pandemic continues?
There are multiple protections on your VA-guaranteed loan if you are experiencing financial hardship due to the COVID-19 emergency. The hardship can be direct or indirect. For example, you may be directly affected because you have lost your job, or you may be indirectly affected because of childcare situations that have decreased your monthly income or increased your costs.
The moratorium on evictions ended on .
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How Much Does A Va Refinance Cost
If you are refinancing an existing VA loan with a cash-out refinance, expect to pay a 3.6% funding fee, unless you are exempt. The 2.3% cash-out funding fee rate applies to those who are using their VA loan benefit for the first time.
For example, if you purchased your first home with a conventional mortgage and are now refinancing into a VA loan with the VA cash-out refinance, you would only be subject to a 2.3% VA funding fee.
Alternatively, the IRRRL has a funding fee of 0.5% for first time and subsequent use VA loan use. However, expect to pay closing costs like title insurance and real estate fees.
Va Efforts To Prevent Foreclosure
There are many reasons the VA wants to prevent foreclosures. Not only is foreclosed property much more difficult to deal with, but the VA can be left on the hook for the money they guaranteed when property goes into foreclosure. This can be costly if the foreclosure sale doesn’t cover the amount left on the mortgage. To prevent foreclosure, the VA provides free financial counseling for all veterans or surviving spouses, even if the loan the veteran or their family has isn’t a VA loan. The VA also provides free loan technicians to those who do have VA-backed loans. The loan technician will help VA loan borrowers avoid foreclosure by providing them with advice and options.
A technician’s suggestions will vary based on whether the borrower is trying to keep their home or not.
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Can I Refinance My Va Loan While In Forbearance
As a matter of fact, the VA loan is the only option that allows you to actually refinance while youre in forbearance. So some of the most common questions that I get around this topic is can I refinance my loan while in forbearance? And the answer is, absolutely, Yes.
You cannot refinance a conventional loan, thats Fannie Mae or Freddie Mac. You cannot refinance an FHA or a USDA loan if youre in forbearance.
But VA will actually let you do so.
How To Apply For A Va Streamline Refinance
The Department of Veterans Affairs runs the VA loan program and insures VA loans, but private lenders provide these loans to veterans.
If you meet the VA IRRRLs eligibility requirements, which well discuss in detail below, your first step is to shop for lenders.
Heres a quick three-step guide to getting a VA Streamline Refinance:
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Exceptions To The Net Tangible Benefit Requirement
A VA streamline refi wont always require borrowers to show a net tangible benefit. You can skip this requirement if:
- Youre refinancing out of an ARM: Fixed-rate mortgages often have higher interest rates than adjustable-rate mortgages . But with an ARM, your payment could go up later. Locking in a fixed rate through a VA streamline refi may cost more at first, but it could also save a lot later in the loans term
- Youre getting a shorter loan term: Trading a 30-year loan for a 15-year loan can save a lot in interest over the life of your loan. But the shorter term will likely increase your monthly payment
- Youre financing energy efficient home improvements: The IRRRL program lets homeowners get up to $6,000 in cash back to make energy efficient home improvements which will save money over time
The VA makes these exceptions because they let homeowners create ways to save more money in the future, throughout the life of the loan, even if they cost more up front.
You do not need your certificate of eligibility for a streamline refinance. Most lenders request a prior loan validation request from the VA in lieu of a COE.
% Loan To Equity Value
You dont need any equity to refinance your VA loan into a lower rate or take cash out in most cases. In fact, with a VA Streamline loan, you can refinance up to 120% of your homes value for changing your term or lowering your rate. This means you can refinance even if you owe more on your home than its worth.
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Va Streamline Refinance Eligibility Guidelines
If youre interested in a VA Streamline Refinance you must currently have a VA home loan. Most veterans, including National Guard and Reservists, can qualify.
There are some additional eligibility requirements related to your type and length of military service.
In addition to those minimum service requirements, youll need to meet the following criteria to be eligible for a VA Streamline Refinance loan:
- Payment history: Youll need a six-month history of on-time payments
- Waiting period: The IRRRL program requires a 210-day waiting period since you closed your existing loan
- Most VA lenders will not check your credit score
- Net tangible benefit: Your new loan has to do something your old loan couldnt do for example, reducing your interest rate and monthly mortgage payment or switching from an adjustable-rate mortgage to a fixed-rate mortgage
Some of these requirements arent as simple as they seem on the surface, so lets take a closer look at each one.
Va Loan Buyers Guide: Eligibility Benefits And How To Apply
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
A VA loan allows active-duty service members, veterans and eligible surviving spouses to finance a home with no down payment, no mortgage insurance and lenient credit requirements. Understanding how a VA loan works will help you determine if its the right mortgage for your purchase or refinance plans.
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Access The Special Housing Adaptation Grant
The main difference between the SHA grant and the SAH grant is the amount of funding available. Which one you qualify for may depend on the severity of your injuries and the number of grants available. The maximum funding under this grant is $20,387 for 2022. The funds can also be used up to six times.
Conventional Loan Refinance Rules
If you have a conventional mortgage one backed by Fannie Mae or Freddie Mac you might be able to refinance immediately after closing your home purchase or a previous refi.
Keep in mind many lenders have a six-month seasoning period before a current borrower can refinance with the same company. So youll likely have to wait if you want to refinance with the lender youre already using.
You can often get around the six-month seasoning rule by simply refinancing with a different lender.
But you can often get around that six-month refi waiting period by simply shopping around and refinancing with a different lender.
While its rare, some lenders charge a prepayment penalty fee that could derail your refinance plans. Check to see if your current loan has a prepayment penalty clause before moving forward.
Its recommended that you shop around before refinancing, in any case, to make sure youre getting the lowest rate possible.
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Exemption From Funding Fees
Disabled veterans are exempted from the VA funding fee, so they dont have to pay the VA funding fee during closing. To qualify for the exemption, you must currently receive some form of disability benefits. Your level of disability is irrelevant.
This exemption can save veterans or their surviving spouse thousands of dollars. For example, if you buy a home worth $200,000, you might pay as much as $2,800 $7,200 in VA funding fees when you close. Disabled veterans can avoid this fee.
Va Loan Forbearance Under The Cares Act
VA loans have been covered since the earliest days of the pandemic under the Coronavirus Aid, Relief, and Economic Security Act . The CARES Act, a $2.2 trillion economic stimulus bill passed by the 116th U.S. Congress and signed into law on March 27, 2020, responded to the economic challenges brought on by COVID-19.
Since initial implementation, the forbearance relief provided for under the act has been extended several times as the pandemic has gone on. Communicate with your servicer about your options.
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How Does A Va Loan Work
On the surface, a VA loan works like any other home loan program. You fill out a loan application with any bank, lender or credit union of your choice that offers VA loans. Youll provide proof of your income and credit history and verify that you have enough money saved up to cover closing costs.
However, there are some big differences between VA loans and the loans available to the average civilian, like conventional loans and loans backed by the Federal Housing Administration . Loan-related costs and fees are charged and paid differently when youre using a VA loan.
A Foreclosure / Short Sale Will Not Ruin Your Credit Forever
But it will have a significant impact on your ability to obtain another mortgage for quite some time.
Its extremely crucial to NOT have any negative blemishes on credit after the foreclosure / short sale has been completed.
Having one late payment after the negative event could have a huge setback in obtaining a home loan.
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How Many Times Can You Use A Va Loan
There is no limit to the number of times you can use a VA loan entitlement. If you qualify for the VA loan program, it is a life-long benefit that you will be able to enjoy. That said, there are some stipulations for using your VA loan. As mentioned above, you typically need to restore your entitlement before you can use it for another VA home loanmeaning you pay off the remaining balance of your mortgage.
However, there is an exception that allows you to have two VA home loans at the same timereassignment. If you are required to relocate for PCS, you may be able to retain your primary residence that the original VA loan was used for and use the remaining entitlement to purchase a residence in the new location.
Why You Might Want To Refinance Quickly
Closing on a home loan can be a stressful event, and it often involves a lot of time and money. You may not want to go through the loan process again, but there are plenty of reasons for why you should consider refinancing.
For one, a mortgage refinance can help you save money. And because theres no limit to how often you can refinance a home, its worth exploring even if youve been down this road before.
You might want to refinance to:
- Lower your interest rate. If mortgage refinance rates have dropped substantially since you closed on the original home loan, you could save on interest costs by refinancing to a lower rate. Its also a good option to consider if a newly improved credit score qualifies you for a lower rate.
- If your financial situation has changed recently, a housing payment that was once affordable might not fit into your budget now. Refinancing into a longer-term mortgage can help lower your payments.
- Switch to a fixed rate. An adjustable-rate mortgage, or an ARM, offers a fixed rate for a set period. The rate becomes variable once that period ends, which means your payments may increase. You may decide to refinance into a 15-year fixed-rate loan if you notice interest rates are rising.
- Eliminate private mortgage insurance . You may have to pay private mortgage insurance if your down payment was less than 20% on a conventional mortgage. But if your homes market value has dramatically increased, then refinancing may help you eliminate PMI.
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