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Refinance Your CalVet Loan; 3 Options

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CalVet Loan to a VA Loan

The CalVet home loan program is a great way for a Veteran in California to buy a home. However, the VA loan program beats out the CalVet loan program in a lot of ways. A California Veteran looking to buy a home using their VA entitlement should look at both programs. This article is for those Veterans who financed their home purchase with a CalVet loan and now want to look at their refinance options.  


The first thing to know is that CalVet does not do refinancing. The CalVet loan program is only for purchases. So what is a CalVet borrower to do if they want to lower their interest rate when rates go down? Or pull cash out for home improvements or debt consolidation when property values go up?


This is where is will be helpful to understand your options. Know when it makes sense to refinance a CAlVet loan into a VA loan with either a VA Interest Rate Reduction Refinance Loan (VA IRRRL) or a VA Cashout refinance. And know when it may make more sense to refinance in a Conventional loan. All options should be reviewed to make sure you are making the best decision.

The Problem: CalVet borrower has an interest rate that is at least .5% higher than current VA interest rates and just wants to lower the rate and payment. No cashout needed.

Interest rates fluctuate. They can move from one day to the next. Why stay in a loan with an interest rate that is .5%, 1% or more above current market mortgage rates? Every situation is different, but not taking advantage of the possibility of saving hundreds of dollars per month and thousands of dollars over the life of a loan is just not smart. Even if you feel that you can easily afford your payment just think what could happen if you made the same payment you are making now but at a lower interest rate. You could end up taking years off your loan payoff. So what is the best option for a "Rate and Term" refinance out of a CalVet home loan?

The Solution: The VA IRRRL, also known as the VA Streamline Refinance

The VA IRRRL is probably the best mortgage refinance available, at least for those that are eligible. Most CalVet home loans are backed by VA, making them eligible for a VA IRRRL. VA IRRRL is an acronym for VA Interest Rate Reduction Refinance Loan. It is also known as a Streamlined Refinance since No Income Documentation is Required, No Appraisal is Required, and No Assets are required. As long as you are making your payments on time along with a few other qualifying requirements (.5% lower rate and breakeven in 36 months or less on the refinance). 


Not all VA lenders know how to do a VA IRRRL from a CalVet loan. CalVet uses an unusual method of financing known as a Land Contract. If your lender gets hung up trying to figure it out then contact a lender who specializes in CalVet to VA refinancing. 

VA cash out refinance

The Problem: CalVet borrower has owned their home for a few years and property values have gone up. They would like to consolidate some credit cards and also update their kitchen. They have a VA Disability rating of 10% or more.

When property values go up it can be nice to take advantage of the built up equity to put yourself in a better financial position. Or to make your home into your Dream Home, or at least something closer to your dream home. What are your options?

The Solution: The VA Cashout Refinance

The VA Cashout refinance is a "full qualifying" loan. Unlike with the VA IRRRL above, there will be an appraisal. The loan amount cannot be greater than 90% of the appraised value. Also, there will need to be a clear termite report prior to closing. And the borrower must have sufficient income to qualify for the new payment.


Let's assume a California Veteran purchased his property a few years ago for $400,000 with a $400,000 CalVet loan. Now the property is worth $500,000. The maximum VA loan would be $450,000 (90% of $500,000 value).  The current balance of the CalVet loan is now $375,000. There is $75,000 equity available for closing costs, prepaid expenses, and cash out for debt consolidation and home improvements. Again. it's important to get with a California VA Lender who can prepare a VA Total Cost Analysis which will give you a full breakdown of the numbers prior to making the decision on whether a refinance makes sense.


An important fact to point out is the Disability Rating of 10% or more. By having a Disability Rating of 10% of more the VA Funding Fee is waived. Otherwise the VA Funding Fee will be 3.6%. In the example above, if the Veteran did not have a Disability Rating then approximately $15,500 would be added to the base VA loan. That adds a big fee that needs to be considered prior to making the decision to do a cashout refinance.

The Problem: CalVet borrower has owned their home for several few years and property values have gone up significantly. They would like to consolidate some credit cards and also update their kitchen. They DO NOT have a VA Disability rating.

The main difference between this problem and the last problem is the Disability Rating. What are the options for a cash out refinance if the CalVet borrower is trying to avoid a 3.6% VA Funding Fee? 

The Solution: The Conventional Loan Cash-out Refinance

While VA allows cash-out to 90% of the appraised value, Conventional loan programs only allow cash out to 80% of the value. But if you don't have a Disability Rating then at least you won't have to pay the 3.6% VA Funding Fee. 


Let's assume a California Veteran purchased his property several years ago for $400,000 with a $400,000 CalVet loan. Now the property is worth $550,000. The maximum Conventional loan for a cash out refinance would be $440,000 (80% of $550,000 value).  The current balance of the CalVet loan is now $350,000. There is $90,000 equity available for closing costs, prepaid expenses, and cash out for debt consolidation and home improvements. 


Because more equity is required to pull cash out with a Conventional loan, another option may be to get a Home Equity Line of Credit. HELOC's can go to 90% of the property value and in some cases even 95%.



Know Your Options

Understanding your options is important. Make sure to do a little bit of research and work with a lender who can show you the numbers in an easy to read and understand manner. You'll want to compare your current loan to several different options and review the payment, costs, and savings now and over time. Your lender should be able to provide you with a VA Refinance Savings Analysis that compares your current loan to your refinance options. 

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS 2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

What is the maximum loan to value on a VA cash out refinance?

maxcashout2The VA mortgage program is an excellent option for California’s Veterans when it comes to refinancing home to pull cash out. Similar to how VA allows for 100% financing on a home purchase, VA also allows 100% financing on cash out refinances.

There are two main types of refinance programs available using VA financing. The VA IRRRL or Interest Rate Reduction Refinance Loan, which is also known as a VA Streamline Refinance, is an extremely simplified process that doesn’t require a new appraisal and only needs a minimal amount of documentation. With a streamline refinance, a veteran has the ability to lower their interest rate and/or take time off of their loan term. The VA IRRRL is strictly a “VA to VA” refinance, meaning you must already have a VA loan to take advantage of the IRRRL program. Also, a VA IRRRL DOES NOT ALLOW CASH OUT.  And this is where the other VA refinancing program comes into play.  A VA cash out refinance is a much more thorough process but allows cash out up to 100% of the property value.FAQ on VA cashout refi

9 Things to Know about a VA Cashout Refinance

  1. The current loan being refinanced does not need to be a VA loan. Yes, you can refinance an FHA or Conventional loan into a VA loan. Many Veterans refinance their CalVet loans into a VA loan since CalVet does not offer refinancing.
  2. VA allows for cashout refinancing up to 100% of the property value. No other program even comes close.
  3. The VA program is not a one time benefit. It can be used multiple times.
  4. VA allows a cashout refinance to payoff a Chapter 13 bankruptcy. This is just an example of how flexible the qualifying is.
  5. Unlike the IRRRL program, a VA cashout refinance is a fully qualifying loan. Full income and asset documentation, appraisal, and clear termite report are required.
  6. It only takes 30 days to close.
  7. VA interest rates tend to be very competitive with other loan programs, despite the fact that VA will allow 100% financing.
  8. There is no PMI, or monthly Mortgage Insurance (like you would have on other loan program that allow financing above 80% loan to value.
  9. There is a VA Funding Fee, except for those Veterans with a disability rating. (VA waives the Funding Fee for Veterans who have a Disability Rating)

In order to get a VA cash out refinance, California Veterans will need to provide the lender their income and employment documentation. The lender will also need to order a new appraisal of the property to verify the property value and establish the maximum loan amount.

While VA cash out refinances are able to be completed up to 100% value of the property, not all lenders follow will do everything VA allows. With many VA cash out refinances, some lenders will limit the maximum cash out amount to 90% of the property value. If you run into a situation where the lender is limiting your cashout to less than 100% of the property value (and you want the higher loan amount), find another California VA lender who can get you the loan amount you want.

When checking into your options for refinancing, it is important to research and give consideration to all available possibilities. A VA refinance is a great option for California Veterans, but the VA Funding Fee can be steep (unless you get the waiver). If you only need cash out to 80% of the property value, then a Conventional loan may be a better option. Have your favorite California VA Loan Specialist prepare a Side by Side comparison of the programs so that you can see your options.


Authored by Tim Storm, a California VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.CaliforniaVALoanExpert.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

 

Two Types of VA Refinancing in California

california va mortgage calculatorThere is more than one type of VA refinance program available for California Veterans. While the most common type of VA refinance program is the VA Interest Rate Reduction Reduction Refinance, or VA IRRRL, the VA cashout refinance is also very a very popular VA refinance program.

What is a VA IRRRL?

A VA Interest Rate Reduction Refinance, also know as an IRRRL or VA Streamline Refinance, is only for current VA borrowers.You must already be in a VA loan.  It offers a great benefit to current VA loan borrowers because it allows for an easy way to take advantage of improving interest rates.

  • The Veteran must already have a VA loan
  • No cash out is allowed. This program is strictly a “Rate and Term” refinance.
  • No income documentation is needed. Employment is verified, but debt to income ratios are not reviewed.
  • No asset verification, meaning no bank statements needed, unless the Veteran will need money to close the IRRRL.
  • No appraisal or termite report required. This is the best part and makes the time to close a VA IRRRL very short since the lender doesn’t have to wait for an appraisal or termite inspection report.
  • The Veteran must either be lowering their interest rate and payment, shortening the term (some qualifying requirements may be needed if the payment is going up), or going from an Adjustable Rate Mortgage to a Fixed rate.

California VA Home LoanThe VA IRRRL is so easy to close that it is also advertised heavily by some lenders who don’t always have the Veterans best interest in mind. Current VA borrowers are used to receiving mailers from lenders offering interest rates that are “too good to be true” (in the words of many of my clients). Make sure to read the fine print, or contact a VA lender you trust for advice on whether a VA IRRRL makes sense for you. Also, while some lenders will advertise that you will “skip payments”, that is never the case with any type of refinance. Mortgage interest will be collected and paid on the loan being paid off every time. It’s just a matter of whether you choose to have it added to the new loan or pay it out of pocket. Make sure you know how much you will save monthly, as well as what the “breakeven” time period will be on your refinance. Make sure you will breakeven prior to when you think you will sell your home.

What is a “Cash Out VA Refinance

Any VA refinance that is not an IRRRL is a “cash out refinance”. Even if the Veteran will not be receiving cash out at closing, VA still considers the refinance to be “cash out” if the borrower is refinancing from a non-VA loan. And why, you ask, would someone choose to refinance from a non-VA loan into a VA loan. There are many reason, including:

  • VA interest rates tend to be lower than most other types of loan programs. And the interest rate spread widens in favor of VA for borrowers whose FICO scores are lower than 740, or are pulling cash out, or have a loan to value of 80% or higher.
  • Some lenders will allow VA refinancing for borrowers with FICO scores as low as 580. That can’t be done with Conventional financing.
  • VA allows “cash out” refinancing up to 100% of the property value. Conventional programs cap out at 80% of the value. Also, unlike Conventional financing, there are no “pricing adjustments” for the worse for pulling cash out with a VA loan.
  • VA has much shorter wait periods after major credit events like a bankruptcy (2 years after discharge for VA versus 4 years for Conventional), foreclosure (2 years for VA versus 7 years for Conventional) or short sale.
  • VA allows for higher debt to income ratios (no cap – not unusual to have debt to income ratios above 50% on a VA loan versus a cap of 45% on Conventional financing)
  • Jumbo VA program allows for cash out at a much higher loan to value than standard Jumbo programs. For example, in Orange or Los Angeles counties, where the VA loan limit for 100% financing is $636,150, a Veteran could pull cash out to a little over 90% of the property value if the appraisal was in the $1,000,000 range. And it would be at a lower rate than comparable Jumbo programs.

va cashout refinancewTypical Uses of Cash Out from a VA Refinance

The Veteran can use the cash out for just about any purpose. But the most common purposes are listed below.

  • Debt Consolidation. This is a great way to pay off high interest rate credit cards that you are carrying the balance on.
  • Home Improvements. – with property values increasing over the past few years, Veterans now can take advantage of their equity and improve their homes, whether it is paint, flooring, a kitchen remodel, etc. Since the loan can be up to 100% of the property value, it acts as a far easier way to improve your home versus a construction loan.
  • Refinance from a CalVet Loan. Because CalVet does not refinance, Veterans end up locked into an interest rate that is higher than the market. They aren’t able to do a VA IRRRL because their loan is CalVet, not VA. Refinancing their CalVet loan into a VA loan can lower their payment and give them access to the VA IRRRL if rates drop later.
  • Education. College is expensive. Many Veterans will take advantage of the VA cashout refinance program to help cover college expenses for their kids.
  • Pay off a HERO or PACE loan. The HERO loan program is used for energy efficient improvements to the home. It is most typically used for solar panels, but can include other energy efficient improvements as well. In many cases it is then paid through the annual property tax bill. Depending on the size of the HERO loan, the tax bill increase can catch some people off guard. And if they have an impound account for property taxes, it can also throw their lender off guard when the property tax bill comes in much higher than expected, resulting in the lender increasing the monthly mortgage payment to make up for the higher tax bill. Using a VA cash out refinance to payoff the HERO loan will put the property tax payment back down to a reasonable level.

For someone who has never had a VA loan it is important to know that VA does require a few things that are not required with other types of financing. With VA, there will most likely be an impound/escrow account for property taxes and insurance. This means you will pay 1/12 of your property taxes and homeowners insurance each month as part of your mortgage payment. Also, VA requires a clear termite report prior to closing. And the last important thing to know is that VA requires a Funding Fee on cash out refinances (and purchases). Depending on whether you have used VA financing previously, the Funding Fee can be as high as 3.3% of the loan. It can be financed into the loan amount. For Veterans who have a disability, their Certificate of Eligibility will inform the lender to waive the VA Funding Fee.

The best way to determine whether a VA refinance is for you, and what your option are, is to call a California VA loan offer who specializes in the VA loan program. The Loan Officer should be able to provide custom loan scenarios that will not only show the payment breakdown, but also accurately estimate the closing costs and cash going back to you.

Authored by Tim Storm, a California Loan Officer specializing in VA home Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

VA Cash Out Refinance for California Veterans

cash out VA refinanceThe VA cash out refinance is one of the most under utilized VA benefits available for California Veterans. The advantages of using the VA loan program for pulling equity out of your home include being able to borrower up to 100% of your home value, flexibility when it comes to credit and income qualifying compared to other types of financing, and lower interest rates compared to other types of programs. With those advantages over other home loan programs you would think all Veterans would at least compare their VA loan options when considering a cash out refinance. But many Veterans either don’t realize how good the VA loan program is, or don’t realize it is even an option.

Who is Eligible for a VA Cash Out Refinance?

Any California Veteran is most likely eligible for a cash out VA refinance. The loan being refinanced does not need to be a VA loan. As a matter of fact, many Veterans have found over the last few years that because VA allows financing up to 100% of property value with no monthly mortgage insurance,  even “rate and term” refinancing from a Conventional or FHA loan into a VA loan can save a lot of money. Even if you have had a VA loan previously, your Entitlement can be restored in most cases so that you can get another VA loan. It is even possible to have more than one VA loan at a time, as long as the new VA loan is on your Primary Residence.

What are the Credit Requirements for a Cash Out VA Refinance?

VA has very flexible credit and FICO score requirements compared to Conventional loan programs. While most California VA lenders will allow a cash out refinance for Veterans with a FICO score over 620, there are some California VA lenders who go allow for the FICO score to be as low as 580. Try that on a Conventional loan  🙂 . Also, VA has a very short wait period after bankruptcy and foreclosure. VA will allow a cash out refinance only two years after a bankruptcy, foreclosure, or short sale. It’s even possible to use a VA cash out refinance to pay off a Chapter 13, as long as the scheduled payments have been made on time and the Chapter 13 bankruptcy has been going for 24 months.california va loan cash out refinance

What is the Maximum VA Loan Amount?

There is not a “maximum VA loan amount”. That statement may not sound right to some, but it is true. There is a maximum 100% financing VA loan limit which varies for each county. But it is possible to get a Jumbo VA Loan if your loan amount is higher than the 100% loan limit. The base 100% VA loan limit in 2018 is $453,1100, but there are 25 “high cost” counties in California with 100% VA loan limits higher than $453,100. The highest 100% loan limit in California in 2018 is $679,650. Some of the California counties with the maximum loan 100% loan limit are Orange, Los Angeles, Alameda, Contra Costa, and San Mateo. Jumbo VA loans over $1,000,000 are not unusual.

Typical Reasons for a VA Cash Out Refinance

  • Cash out for home improvements  – kitchen remodel, windows, room addition, etc
  • Cash out for debt consolidation – paying off credit card debt or other installment loans, student loans
  • Cash out to pay off HERO Loan/PACE loan for solar panels.
  • Cash out for emergency reserves or investment
  • Refinance from Conventional loan to VA to lower the interest rate, especially when there is less than 20% equity in the home and the Conventional loan has PMI.

How Difficult is it to Qualify for a Cash Out VA Refinance?california va loan refinance

We already discussed the relative flexibility in credit standards. VA is also flexible in allowing a higher debt payments to income ratio than other programs. While Conventional financing caps the debt to income ratio at 45% in most cases, VA does not have a cap. VA is more concerned with the “disposable income”. It is not unusual for VA loans to fund with debt to income ratios higher than 50% or even 55%. Some California VA lenders may have an “overlay requirement” and not allow debt to income ratios over 45% or 50%, so it’s important to work with a California VA lender that follows VA underwriting guidelines as closely as possible.

To learn more about a VA Cash Out refinance, contact a California VA Loan Expert. Working with someone who specializes in VA financing is important because the VA program is unique. Most loan officers don’t understand many aspects of the VA loan program and may even talk a Veteran out of using the program because of their lack of knowledge. Don’t let that happen to you. Find out how you can benefit from a VA cash out refinance.

*Updated Jan 22, 2018 for new loan limits.

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Cashout Refinance to 100% Loan to Value with a VA Loan

California VA Appraisal by CaliforniaVALoanExpert.comIt is possible to use VA financing to pull cash out up to 100% of the properties value. And while this may be true according to “VA Guidelines”, it’s not true with most lenders. Most lenders only allow a refinance of a VA loan to 90% of the properties value. First, it’s important to mention that there are different types of refinancing when it comes to VA.

VA Refinancing Types

The most commonly know VA refinance is the “IRRRL”, or Interest Rate Reduction Refinance Loan. The IRRRL is strictly a VA to VA refinance. There is no “cash out”. The program is extremely easy since there is not income documentation or qualifying required and no appraisal. In many cases the VA IRRRL is closed as a “no cost” refinance, lowering the rate and/or payment for the Veteran when rates have improved.

The other type of refinance is a non-VA to VA refinance. In the eye’s of VA, any non-VA to VA refinance is considered a “cashout” refinance, even if the borrower will not receive cash at closing. And although VA allows a non-VA to VA refinance to go as high as 100% of the appraised value, many lenders cap it at 90%. This is where working with a lender who truly specializes in VA can provide better options. There are a few VA lenders who will allow not only a non-VA to VA refinance to go to 100% loan to value, but will even allow “cash out” at 100% loan to value. For a Veteran who is either consolidating debt, or just trying to get enough funds for home improvements, being able to refinance to 100% of the property value can provide 10’s of thousands more dollars.

VA Cashout Refinance

Let’s assume a California Veteran who has a Conventional loan (although is could even be an FHA, CalVet, or other type of loan) of $350,000 on a home worth $400,000 is looking to pull enough cash out to remodel their kitchen and make a few other minor improvements on their home. Most lenders who max out at 90% of the property value would only allow $10,000 cash out. (90% of $400,000 is $360,000, which is only $10,000 higher than what the Veteran already owes. $10,000 cash out also assumes there are no closing costs on the loan.) A lender who allows cash out to 100% of the property value would lend $400,000, resulting in $50,000 cash out.

If you are considering a VA refinance it is important that you work with a VA loan specialist who is very familiar with the VA loan program. The VA loan officer should be able to provide custom loan scenarios showing the new loan amount, payment, closing costs and any potential lender credit to offset the closing costs, the the bottom line estimate of cash going to the borrower at closing.

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.