The VA loan program has many benefits and for those who want to buy a home with no money down it’s hands-down the best deal around. In addition to the zero down feature, the VA loan program can also be used to refinance an existing mortgage and there are two types or refinance programs offered by the VA: IRRRL and Cash Out.
IRRRL is the acronym for the Interest Rate Reduction Refinance Loan, and if a borrower with an existing VA loan wants to lower the current interest rate on their mortgage or get out of an adjustable rate mortgage into a fixed rate loan, it’s arguably the simplest refinance program on the market. How so?
The IRRRL doesn’t require verification of income, an appraisal or a credit check. As long as the borrower has no more than one 30 day late payment in the previous 12 months and the monthly payment is being reduced and/or out of an adjustable into a fixed, the loan can be closed quickly and with reduced costs.
A cash out VA loan however is another type of refinance program. A VA cash out loan is a refinance where the borrower takes out additional equity from the property in the form of cash. How much? The VA program allows borrowers to pull up to 100 percent of the current value of the property in cash. Note here however that most lenders don’t allow 100 percent and limit the cash out loan to 90 or even 80 percent of the property’s value.
For example, a current loan has a balance of $100,000 and the value is $200,000. If a VA lender allowed for a 90 percent loan, the new loan could be as high as $180,000. From this new loan amount, the existing $100,000 loan balance and closing costs would be deducted from the $180,000, with the remaining going to the borrower in the form of cash.