As the name suggests, veterans refinance is a government scheme for public servants or members of the US military to refinance their current home loan, regardless of whether it is already a VA guaranteed mortgage. The basic idea behind refinancing a loan is to lower interest rates. Public servants, members of the US military, and their spouses are eligible for the VA refinance program. VA loans are different from conventional loans. There are a few exceptions like eligibility criteria, down payment value, and low-interest rates. There are two main types of veterans refinance loans, Interest Rate Reduction Refinance Loan (IRRRL), also known as streamline refinance, and Cash-Out Refinance Loan.

Read on to know more about the different types of veterans refinance options and their eligibility criteria.

Interest Rate Reduction Refinance Loan (IRRL)
In the current low interest-rate environment, everyone is looking to refinance their existing loans. For homeowners with VA loans, the refinancing program is the easiest to apply and has lenient loan requirements compared to conventional home loans. Borrowers need not pay any additional appraisal fee, and neither do they have to go through stringent credit checks or submit income proofs. VA refinance program is beneficial but not perfect for every veteran. It offers no options to cash out home equity. If the borrower is paying an adjustable-rate mortgage on the existing loan, refinancing to a fixed rate can result in a higher interest rate.

Eligibility Criteria for IRRRL

• The borrower should have an existing VA loan to be eligible for veterans refinance
• A certificate of eligibility should be shared by the current VA loan lender
• Borrowers should not have a 30-day late payment in the last 12 months

Cost of IRRRL

• There is a VA funding fee charged to the applicant.
• The fee amount is 0.5% of the total loan amount
• The borrower can pay the fee on closing or roll in the loan amount.

Cash-Out Refinance Loan
VA cash-out refinancing loan scheme allows borrowers to take out some cash from home equity for debt payments or home improvements along with the refinancing option. The borrower should not specifically have a VA loan to qualify for a cash-out refinance loan. They can have a conventional loan, FHA, or a VA loan. It has a lower rate of interest with better loan terms. Borrowers can tap into their home equity to get some hands-on cash and refinance up to 100% of the home value. Borrowers are required to go through the evaluation process. They might have to pay the closing cost of the previous loan. Cash borrowed should be paid during the new loan tenure because the home acts as collateral. If borrowers defaults on payment, they stand to lose their home.

Eligibility Criteria for Cash-Out Refinance Loan

• The borrower doesn’t have to occupy the property they are refinancing, which is a requirement in IRRRL
• Must meet all criteria to qualify for a certificate of eligibility
• The borrower must provide all required financial documentation to the lender

Cost of VA Cash-Out Refinance

• The VA funding fee is higher than IRRRL.
• 2.30% of the loan amount has to be paid for first-time use and 3.60% for later use.
• Additionally, borrowers need to pay closing costs as per lender requirements, which can easily be between 1% and 3% of the loan amount.

Whether you want an IRRRL or cash-out refinance loan, before you apply, ensure that you check the current interest rates and compare them with your current home loan rates. There are online calculators that can help you determine the exact amount of savings you can earn by refinancing your home loan.