The Benefits of Refinancing Your Home with a VA Loan

If you qualify for a VA loan, there are a number of different reasons that you should consider using your loan options. If you need to refinance your house, a VA loan could be perfect for you and can provide you with many benefits.

Eliminate PMI

Private mortgage insurance, or PMI, is a very common expense associated with most mortgages. Paying for this is usually required by most standard loans because it is an insurance policy against your default on a loan. Therefore, if you walk away from the loan, the insurance company will reimburse the bank for the balance of the loan. Until you pay down the loan balance to 80% of the original value, you will be required to pay for PMI. However, when utilizing a VA loan, this is not the case. Your mortgage loan is guaranteed by the federal government and therefore does not require a borrower guaranty. This means that you could save quite a bit of money on your mortgage payment because PMI payments can be more than 1 percent of a mortgage payment.

No Prepayment Penalties

In addition to eliminating PMI, a VA loan will also eliminate prepayment penalties. A prepayment penalty is a fine that is imposed for early loan payoffs. Many mortgage loans have this clause within them and it can really negatively affect homeowners. If you have a prepayment penalty on your mortgage, you would not be able to sell the house or refinance early without paying a fine. This can really limit your options because it can make you financially unable to get out of a mortgage if you should need to.

Flexible Qualifications

Another great benefit of refinancing your home with a VA loan is that you could benefit from flexible qualifications. Many people cannot refinance their home because they do not meet the standards that a normal lender requires. Therefore, they are stuck in their current mortgage, regardless of how much money they could save with a refinance. A VA loan will allow you to refinance with flexible guidelines. For example, because the lender knows that the government is guaranteeing the loan, they might be able to compensate a high debt-to-income ratio with a history of earnings. Having the federal government behind you makes it much easier to get approved for the loan that you need.

Low Closing Costs

One of the big problems that many people experience when refinancing is the closing costs that are involved. When you refinance with a VA loan, you can typically do so with very low closing costs and no money out of pocket. The VA program puts a limit on the amount of closing costs that can be charged. You can also typically roll the closing costs into the loan and not have to come up with any money. Check with a few lenders before you decide to invest money to be sure that you are securing the best loan option.

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