If you’re a Tennessee homeowner facing debt challenges, you might be considering innovative strategies to make the most of your primary asset—your home. The idea of using your home’s equity is gaining popularity, particularly among veterans.
VA cash-out refinances present a special opportunity to tap into the equity in your home. This option can be a lifeline, offering funds to settle debts, upgrade your home, or enhance your financial health. Our detailed guide will walk you through the complexities of VA cash-out refinances, illustrating how they can be a vital financial resource.
Whether your goal is to improve your home or secure a better mortgage loan, JVM Lending can help guide you toward making well-informed choices.
Understanding the IRRRL and How It Differs from a Cash-Out Refinance
The Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance, presents a unique refinancing option for veterans and active service members through the Department of Veterans Affairs (VA). Specifically for those with VA loans, the IRRRL aims to reduce your mortgage’s interest rate or change an adjustable-rate mortgage (ARM) into a fixed-rate one, leading to more consistent and manageable monthly payments.
The key difference between an IRRRL and a VA home loan cash-out refinance lies in their purposes and the benefits they provide. Although both refinancing options are accessible to VA loan holders, they address distinct financial requirements.
The VA Streamline Refinance (IRRRL)
- Purpose: The IRRRL is specifically aimed at reducing your mortgage rates, which can lead to significant savings over the life of your loan. Its primary goal is to offer financial relief by lowering monthly payments or shortening the loan term.
- No Cash-Out: Unlike a cash-out refinance, the IRRRL does not provide you with a lump sum of cash. It focuses solely on restructuring your existing loan to achieve better terms.
- Simplified Process: The IRRRL process is streamlined, meaning less documentation, no appraisal in most cases, and often no out-of-pocket costs. It’s designed to be faster and much easier than a cash-out refinance or a VA purchase money loan.
- Eligibility: To be eligible, you must already have a VA loan, and the IRRRL must provide a financial benefit, such as a lower interest rate.
The Cash-Out Refinance
This mortgage loan stands out with its ‘cash-out’ feature, which permits homeowners to convert a portion of their home’s equity into cash. This cash can serve multiple purposes, such as clearing consumer debt, financing home renovations, or fulfilling other financial requirements. This loan type not only offers an opportunity to modify your mortgage terms but also allows you to utilize your home’s equity to achieve your financial goals.
Key Aspects:
- Purpose: A cash-out refinance empowers you to access your home’s equity, giving you a cash amount for diverse uses such as debt consolidation, home improvements, or other financial goals.
- Debt Management: For Tennessee homeowners with existing debts, this refinance option consolidates high-interest debts into a single, more manageable loan with potentially lower interest, leading to improved financial control.
- Eligibility and Requirements: This refinancing requires a fresh appraisal of your home to establish its current value and available equity. It usually entails a more comprehensive review of your credit and income than the IRRRL.
- 100% Loan-to-Value: This is what makes VA cash out loans unique amongst all cash out loans – you don’t need equity! Or, you at least don’t need an equity cushion remaining after your loan closes, as the VA will lend up to 100% loan-to-value. Most other types of cash loans require at least a 20% to 25% equity cushion remaining after close.
While the IRRRL is ideal for those seeking to lower their mortgage rates and enhance their current loan terms, a VA cash-out refinance is more apt for homeowners needing cash for debt consolidation, home improvements, or other large expenses. Understanding these distinctions is key to making a well-informed choice that suits your financial needs and situation in Tennessee.
Eligibility Criteria for VA Cash-Out Loans
To qualify for a VA cash-out loan, there are several essential requirements that you must meet. The primary eligibility condition is linked to your service status. To be eligible for a VA home loan, you must be a veteran, an active-duty service member, or a surviving spouse entitled to VA home loan benefits.
Beyond this, a lender will look at your credit report to ensure you meet the minimum credit score. Your lender will also need proof of income, and will also look at your debt to income ratio (DTI). One key stipulation is that the home you intend to refinance must be your primary residence.
You will also need a home appraisal to establish the current market value of your property. This is a critical step as it dictates the maximum loan amount you can receive. But, once again, you do not need to have substantial equity when you apply for the loan, and you do not need to have any equity remaining after you close your loan. You can borrow up to 100% of the value of your property.
How VA Cash-Out Loans Can Help You Save Money
The financial advantages associated with VA cash-out loans can be substantial. By choosing to refinance your mortgage, you may be able to lock in a lower interest rate than what you’re currently paying. This could lead to more manageable monthly payments and a significant reduction in the total amount paid over the life of your loan, helping to keep more money in your pocket. But the savings potential doesn’t stop there.
The unique ‘cash-out’ feature of these loans provides you with an opportunity to consolidate other higher-interest debts. By rolling these debts into your mortgage, you can replace multiple high-interest payments with a single, lower-interest payment. This streamlining process can make your overall debt management more straightforward and cost-effective, providing further opportunities for financial savings. However, remember that you’re tapping into your home equity, which does come with its own considerations and risks.
Navigating the Application Process
Venturing into the realm of VA cash-out loans entails a systematic journey. Your first step lies in choosing a lender that has been endorsed by the VA to facilitate such loans, like JVM Lending. Having an experienced guide can make this journey less daunting, providing you with essential insights at each stage.
After selecting a lender, you will be required to compile several crucial documents. Your lender will need to see your Certificate of Eligibility (COE) to verify your service status. You will also need to gather recent pay stubs to confirm your income, tax returns to validate your financial standing, and bank statements to give a picture of your financial health. This collection of documents paints a comprehensive picture of your financial life for the lender.
Once you have submitted these documents, your lender will assess your credit standing and income. A credit review is fundamental to ascertain your capacity to meet the new mortgage payments. A review of your income, on the other hand, helps to establish your ability to handle the financial responsibilities that come with a VA cash-out loan.
Alongside the financial assessment, an appraisal of your home will be conducted. This is an essential step, as the market value of your home has a direct impact on the loan amount you may be eligible to receive. An appraiser will evaluate your home and present a detailed report on its worth.
This assessment and appraisal are critical components of your loan approval and the eventual loan terms. It’s not a process to rush through – take your time, stay organized, and don’t be afraid to ask JVM for clarification or guidance. We’re always here to help you succeed.
Choosing A Trustworthy VA Lender
Many companies specializing in VA financing pretend to care about veterans, but still charge exorbitant interest rates. Our VA division at JVM Lending is run by the wife of a veteran, and she is adamant about offering the best financing terms on the market to every veteran who comes our way. And that is why our VA loan rates are lower than those offered by most other lenders. Meet Jenna Armstrong – a Senior Manager at JVM Lending and the wife of a longtime Navy Veteran. You can read more about our VA division here.
VA Funding Fee
IRRRL Funding Fee
- Standard Fee: For an IRRRL, the VA funding fee typically 0.5% of the loan amount.
- Purpose: This fee helps to finance the VA home loan program and is significantly lower than the fee for a first-time VA loan.
- Exceptions: Certain individuals, such as veterans receiving VA compensation for service-connected disabilities and surviving spouses of veterans who died in service or from service-connected disabilities, are exempt from the funding fee.
- Financeable: Can be rolled into/added on to the loan
VA Cash-Out Refinance Funding Fee
- Fee Range: The funding fee for a VA cash-out refinance is typically higher than for an IRRRL. It can range from 2.3% to 3.6% of the loan amount, depending on various factors such as the borrower’s service history and whether it’s the first time using a VA loan benefit.
- First-Time Use vs. Subsequent Use: The fee is generally lower for first-time users of the VA loan benefit (2.3%) and higher for subsequent uses (3.6%).
- Exceptions: Similar to the IRRRL, exemptions are available for qualifying individuals, such as those with service-connected disabilities and certain surviving spouses.
- Financeable: Can be rolled into/added on to the loan
It’s important for homeowners to factor in these funding fees when considering a VA refinance option, as they can impact the overall cost of the loan. However, the VA allows these fees to be rolled into the loan amount, as mentioned above, offering flexibility in how they are paid. Always consult with a qualified VA lender to get the most accurate and up-to-date information regarding your specific situation and eligibility for fee exemptions.
Considerations Before Opting for VA Cash-Out Loans
Taking the plunge into the world of VA cash-out refinance loans is a significant financial decision that warrants careful contemplation. While these loans can provide considerable monetary relief, they’re not without their own set of considerations.
It’s crucial to run a thorough assessment of your financial landscape. Evaluate your existing obligations, your ability to service a new loan, and your long-term financial goals. This will give you a clear picture of whether a cash-out loan is indeed the right choice for you.
A vital aspect to consider is the cost involved in refinancing your mortgage. While the prospects of lower interest rates and debt consolidation are attractive, it’s essential to account for the closing costs and other fees that come with the new loan. Compare these expenses with the savings potential to ensure the refinance operation would indeed be a beneficial financial move. The good news is that many lenders like JVM Lending can often cover some or all of the closing costs for you.
Because a refinance loan comes with its own set of costs, it’s most beneficial if you plan to stay in your home long enough to recoup these costs and benefit from the savings. If you anticipate moving in the near future, the refinance may not have enough time to pay off – unless of course your lender picks up some or all your fees. By talking with one of JVM Lending’s experienced Client Advisors, our team can look at your particular circumstances and help assess if a cash-out refi is right for you.
Next Steps
As a Tennessee homeowner and a veteran, a VA cash-out refinance can offer you a path to financial stability and achieving your home-related goals. The VA cash-out refinance is ideal for those needing funds for debt consolidation, home improvements, or other significant expenses.
If you’re considering leveraging your home’s equity or seeking a better mortgage loan JVM Lending’s experts will provide personalized assistance, helping you determine if this is the right financial step for you and align it with your long-term financial goals. Contact us today for a consultation and take the first step towards optimizing your financial health.
