How to Refinance Your Home as a Veteran or Military Member

Today, I want to discuss a topic that’s really important to many of us: how to refinance your home as a veteran or military member. With over 30 years of experience as a mortgage loan officer, I’ve dedicated my career to helping our nation’s heroes like you get the best deals on home loans.

I’m recognized among the top 1% of loan officers nationwide, and my mission is simple. I’m here to equip you with all the information necessary to make the best choices when refinancing your home.

Whether you’re considering transferring to a VA loan, looking to cut down your interest rates, or needing cash from your home equity, I’ll guide you through the process. Let’s start by breaking down the three most common circumstances for refinancing as a veteran or military member.

Circumstance 1: Switching to a VA Loan from Other Financing

If you’re thinking about switching your current mortgage to a VA loan, I can tell you there are several benefits to consider. This change can provide great financial advantages, such as typically lower interest rates and more favorable terms with a VA home loan.

Making this switch could also help you reduce your monthly payment or even remove the need for monthly mortgage insurance, often required with conventional loans.

Why Consider Refinancing to a VA Loan?

A VA loan isn’t just another option that benefits you as a veteran. These loans typically offer lower interest rates, reducing both your monthly mortgage payment and the total cost over the loan’s life.

But here’s the catch: whether you should refinance with a VA loan often depends on whether you have a service-related disability rating.

Disability Rating and the Funding Fee

As I am deeply familiar with the ins and outs of VA refinance loans, let me explain the funding fee. It helps keep the VA loan refinance program running but can be a high cost if you don’t have a disability rating.

Normally, when you buy a house with a VA loan, you can lower this fee by making a down payment—a 5% down cuts the fee a bit, and a 10% down reduces it even more. But when you’re refinancing, you lose the option to reduce the fee with a down payment.

Instead, you’re hit with a “subsequent use fee,” and it’s not small. Currently, it’s 3.3% of your total loan amount. For example, if you’re refinancing a $1 million loan, your funding fee alone could be $33,000.

It’s important to note that this fee is calculated based on the loan amount and not the equity, which can make refinancing quite costly if you don’t have a disability rating.

Refinancing to a VA loan can be a smart choice if you have a disability rating, which frees you from the funding fee. Without it, though, the cost can add up quickly, potentially offsetting the benefits of lower interest rates.

If you’re thinking about refinancing and need to work out the numbers to see if it makes sense, I’ve got a free calculator tool that can help.

Click here, answer a few quick questions, and I’ll send you a spreadsheet that makes figuring out your potential savings or costs super straightforward.

Circumstance 2: Lowering Your Rate with a VA IRRRL

So you’ve got a VA loan and are thinking about getting a lower rate. I’m here to walk you through the VA Interest Rate Reduction Refinance Loan, or VA IRRRL. Here is how I break down what you need to know to make this happen:

Understanding VA IRRRL Requirements

To be able to do this, the VA has 3 rules:

Rate Reduction

First things first, your new rate must be at least 0.5% lower than your current rate. This isn’t just about dropping your payments. This requirement ensures the refinance is worth your while.

Net Tangible Benefit

Make sure you’re really benefiting from the refinance. You’ll need to hit what’s called a 36-month break-even point. Simply put, the amount you save each month must cover the total cost of refinancing within 36 months. If it takes longer, it’s a no-go.

Waiting Period

There’s also a mandatory cooling-off period. Regardless of your current loan type, you must wait at least 210 days from the date of your first payment on that loan before you can refinance.

The Process Is a Breeze

Now, if you’re worried this sounds complex, don’t be. I want to assure you that the VA IRRRL is streamlined to make things incredibly easy.

There are no qualifying hoops to jump through, no need for an appraisal, and honestly, it’s about as hassle-free as it gets. If you’re up to date with your payments and meet the requirements, it’s pretty much a few clicks away.

I handle the paperwork and send over some federal disclosures, and often, you can close your new loan in just 10 to 14 days. It’s straightforward. If you’ve got a pulse, you can probably get a VA IRRRL.

So, if you’re looking to lower your mortgage rate and learn how to do it easily with a VA IRRRL, why not check out my detailed video on this? It’ll give you all the ins and outs you need to know.

Circumstance 3: Cashing Out on Your Home Equity

The last one is pulling some money out of your house. Let’s talk about using a VA loan for a cash-out refinance. The VA loan allows you to borrow up to 100% of your home’s value, which is pretty incredible.

For example, if your home is worth a million dollars and you currently owe $700,000, you could potentially take out a new loan for the full million and cash out the $300,000 difference, minus closing costs.

Important Considerations with Disability Ratings

Now, the key factor here again is your disability rating. If you have one, the VA loan ignores the funding fee, making this deal sweeter. Without that rating, the VA funding fee for a cash-out refinance can be high, 3.3% of the new loan amount.

That means on a million-dollar loan, you’re looking at an additional $33,000. So, if you’re considering this way, having a disability rating can save you significant change.

Be Cautious with Refinance Offers

A word to the wise: don’t jump on a refinance just because it’s available. I’ve seen people who refinanced their homes back in 2021 at ridiculously low rates, and now some lenders are pushing them to cash out at much higher rates.

Imagine going from a 2.25% rate to something like 6%. It might not be the best move. You’re often better off analyzing a second mortgage, home equity line of credit, or minimum credit score, especially if you’re only consolidating a small amount of debt.

When Does Cashing Out Make Sense?

Sometimes, opting for a VA cash-out refinance is a smart choice. Suppose you’re dealing with a 4.5% interest rate mortgage and need $250,000 for major home renovations.

If you look into a home equity line of credit, you might face interest rates as high as 10–12%, or even more with a construction loan. In such situations, it could be more cost-effective to incorporate these costs into your VA loan.

I always advise discussing your options with a financial advisor or a loan specialist to determine the best path based on your current mortgage and financial goals.

If you’re considering this and need to run some numbers, reach out to me. I have tools and insights to help you decide if this is the right move for you.

Final Thoughts

And that wraps it up. The third scenario with a cash-out refinance could be just what you need. But remember decisions like consolidating debt, funding big renovations, or tapping into your home’s equity shouldn’t be taken lightly. It’s important to talk things over with someone who can offer advice just for you.

If you’re thinking about a cash-out refinance or any kind of refinancing, including a VA streamline refinance, don’t go it alone. Reach out to a professional to review your options and ensure you’re getting the most from your VA loan benefits.

Thanks for following along with me. I’m here to guide you through these choices every step of the way.