California Veterans have recently been taking advantage of low rates by refinancing their mortgages, either currently VA loan or currently Conventional or FHA, into new VA mortgages. There are several reasons, and many advantages the VA program has over other types of loan programs in California. Below are some of the options available.
VA to VA Refinance | The IRRRL
The IRRRL, or Interest Rate Reduction Refinance Loan, is for those who currently have a VA loan, but at a higher interest rate than current rates. This is a very easy program since there is no income qualification. It used to be that there was also no appraisal required, but that has changed somewhat. Most lenders now require either a full appraisal, a “drive by” non-interior appraisal, or an AVM (Automated Valuation Model). While it is still possible to get an IRRRL with no appraisal, it just depends on the current servicer of your VA loan.
Veterans can save thousands of dollars over the life of their loan by taking advantage of this program, but they should also make sure the deal makes sense. Most lenders will use YSP (Yield Spread Premium) to cover most, if not all, of the closing costs associated with an IRRRL. But there is still a 0.5% Funding Fee financed into the loan which should be included in a break even analysis to determine whether an IRRRL makes sense for the Veteran. Also, many lenders advertise that the borrower can “skip” one or even two payments. The Veteran should be aware of what “skipping” a payment entails. It’s not like the interest that is due just disappears. Any interest due that is not paid out of pocket by the Veteran is financed over the life of the loan. So in the end, a California Veteran “skipping” two payments will end up paying mortgage interest on top of mortgage interest for the next 30 years. To determine whether an IRRRL makes sense, ask your California VA lender for a side by side analysis of your current loan compared to an IRRRL.
FHA or Conventional Loan Refinanced into a VA Loan for California Veterans
This has been big and getting bigger. Especially in “high cost” areas like Orange county, Los Angeles county, San Francisco, Marin, Alameda, and other high cost counties. Veterans who have Jumbo or High Balance Conventional loans but have little equity in their home have been shut out of the latest low interest rate refinance boom. For example, a California Veteran with a 6% fixed rate on a $600,000 loan in Orange County, CA, where the home is worth only $600,000, or even $700,000, cannot refinance into a new Conventional loan. Even worse, if the Veteran has 1st and 2nd mortgage and wants to combine them, High Balance Conforming guidelines are even more restrictive. For loans over $453,100, the borrower may have a difficult time combining 1st and 2nd mortgage over 60% loan to value. But VA allows this up to 100% loan to value up to a county’s 100% financing limit. In Orange County, the limit is $679,650 in 2018. It is important to know your countys 100% Financing Limit for VA loans in California.
VA considers any refinance out of a non VA loan into a VA loan to be a “cash out” refinance even if there is no cash actually going back to the borrower. But there are some “niche” VA lenders who follow the VA guideline, which allows for a 100% refinance from Conventional to VA. Make sure you are talking to a California VA loan expert when trying to refinance Conventional loan into a VA loan.
Cash Back to the Veteran to 100% on a Refinance in California
VA does allow cash to go back to the Veteran, but as mentioned before, most lenders cap out at 90%. However, there are some direct VA lenders who follow VA guidelines very closely and do not have “overlays”, which are restrictions to standard VA guidelines. It is possible to get a VA loan up to 100% of the property’s value and get cash out even with a FICO score as low as 500. Whether you need 90% or 100% of your property’s value, the fact that you can refinance at a low 30 year fixed rate, not have mortgage insurance, and would be potentially consolidating high interest debts is something to consider. Your California VA lender should be able to prepare custom loan scenarios giving you a complete breakdown of your options, as well as a side by side analysis of your current loan as it compares to a VA refinance.