Refinancing Homes With VA & FHA Loans

By
Services for Real Estate Pros with RealEstate.com

Despite all of the negative press about how tough getting financing can be these days, streamlined refinancing of home mortgages using an FHA or VA loan promises to be easier than slicing through warm butter with a samurai sword. Is it really?

While there is no question that mortgage lenders have continually tightened guidelines over the last few years, streamlined refinancing programs for home mortgages using FHA loans or VA loans have been heralded as a stress-free way for borrowers to reduce their interest rates and monthly housing payments.

Promises of easy approvals and reduced documentation requirements have kept applications rolling in. However, while some borrowers have found these programs a real blessing, others have found them a whole lot more frustrating than they have been portrayed. So what’s the real deal?

Refinancing Homes With A VA Loan

The U.S. Department of Veteran Affairs created the IRRRL (Interest Rate Reduction Refinancing Loan) program for veterans who want to refinance their VA-backed loan. Also known as “VA to VA” or “Streamline,” the goal is to help members of the military and their families lower their interest rates and housing payments easily.

Potential Benefits of Refinancing Homes with VA Loans:

  • The VA doesn’t require an appraisal or credit underwriting, although the lender may.   
  • No Certificate of Eligibility required.
  • No money out of pocket.
  • You may be able to add up to $6,000 in funds for energy efficiency improvements.

Sounds like a great reward for those who have fought for our freedom, right? Unfortunately, what borrowers need to be aware of is that the VA does not make loans itself. You must apply through an approved mortgage lender that may add on its own requirements. Often this includes appraisals, copies of Certificates of Eligibility, and credit checks to ensure no late mortgage payments in the last 12 months.

Additionally, the interest rate on the new loan must be lower than that of the old loan unless you are moving from an adjustable to a fixed-rate mortgage.

On the upside, borrowers can refinance, often with no money out of pocket, up to 100 percent of the home’s value and finance closings costs, including the 1.5 percent VA funding fee. While this can help by reducing interest rates dramatically, borrowers must watch the numbers carefully as additional financed costs can actually result in higher payments in some cases. Still, these streamlined loans can be a breeze for those who qualify, and are some of the easiest loans to get approved for today. It may not be as sweet as receiving a Purple Heart, but it is certainly a lot easier than going through boot camp again.

Refinancing Home Mortgages Using an FHA Loan

Streamlined refinancing of home mortgages using an FHA loan has been something heavily pushed by the government for helping hard-hit homeowners to reduce housing payments. They sound like a sure thing, but have they actually been regulated into extinction?
 
Requirements for Refinancing Home Mortgages With Streamline FHA Loans:
  • You must currently have an FHA-backed loan.
  • No late mortgage payments allowed in the last 12 months.
  • Must have owned property for minimum of six months.
  • Closing costs must be paid upfront on no-appraisal loans.
In an interview with Mark Towler, a 10-year mortgage veteran in Atlanta, Ga., he pointed out that despite the allure of reduced documentation and no appraisal requirements, most borrowers simply don’t have an extra $4,000 to $5,000 in cash laying around to pay out in closing costs to get these loans. FHA loans may still be the easiest for most home purchasers to qualify for, but when it comes to streamline refinances, it may not make sense for many homeowners.
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