What is a VA refinance and How Does it Work?
A VA refinance is a new loan, not an extension of a current one. There are three types of VA refinancing: conventional, interest-only, and another type known as a hybrid. A VA conventional refinance requires a new application, a brand new title insurance policy, and depending on the type of VA refinancing, more paperwork. Nowadays, there are three different VA conventional refinance loan types.
One is called the extended-term option which can last up to 30 years; another is called the preferred-risk option which can last up to ten years and last only if the buyer has not defaulted on his or her first mortgage. The third type is called the mixed option and provides homebuyers with the option between a conventional and a VA mortgage.
A conventional loan is fixed and has a fixed rate. It’s a simple and traditional refinance. When you refinance your existing mortgage, the value of your home is reduced and you get a different deal than what you had when you purchased your home. The major advantage of conventional loans is that they require only a third as much time as a VA refinancing.
An appraisal is used in conventional mortgages. An appraisal determines the present-day value of your home after you take all the necessary steps in preparing for a refinance. With this information, your bank will tell you the amount of your loan amount and whether you qualify for a lower interest rate or a lower monthly payment. Usually, it is based on the appraised value of your home at the time of closing. This is known as the ARV or Adjustable Rate Mortgage.
A VA refinancing will not only allow you a lower interest rate but also significantly reduces your monthly payments. To qualify for a VA, there are certain steps to take and documentation to provide to your lender. When you apply for a VA, make sure that you understand all the details and take the necessary steps to ensure you meet the necessary qualifications. Because of the length of time needed to complete the process, it usually takes around two to four months to complete the application process, depending on your current standing with the lender.
In summary, before you decide on a refinance, you should consider two things: first, how long would you want to stay in your home, and second, what are your options for a VA home loan? VA refinances are often a good way to consolidate debt and lower your monthly payment while saving on your new mortgage. If you decide to refinance to a fixed-rate mortgage, make sure that you meet the criteria for a lower interest rate, such as an FHA or VA, and also be sure to carefully read through the terms of your new mortgage to know exactly what the loan is for and whether or not you qualify.
If you are thinking about purchasing a new home, it is always wise to do your research and talk with several lenders to get the best rate possible before you go for a refinance. You may just find that this is the best way to secure your finances.
