VA Cash Out Refinance vs VA IRRRL Process

Transcript

What is the VA Loan Home Refinance Process?

There are a couple of things that you want to be aware of. My name is Evan Kaufman, and I’m your VA loan originator.

First, when doing a VA loan refinance, you have to know what kind of VA loan refinance you’re doing. There are two major types that people often see and deal with. The first is something we call a VA Cash-Out Refinance. This is like your typical refinance. You’re planning on doing a refi, so you have to get an appraisal, income documentation, and all that stuff. You might be pulling some money out to pay off your old debt, or maybe you’re taking some of that money to go do something else.

Then, there’s a VA Streamline Refinance, also known by its full definition as an Interest Rate Reduction Refinance Loan, or an IRRRL. It’s a streamlined refinance that really no other loan type has the ability to offer. We’re going to talk about these two different types in this video, but note that the process for doing them is slightly different.

VA Cash-Out Refinance

First, if we’re looking at doing a VA Cash-Out Refinance, as I already hinted, it’s more like your standard, typical conventional loan. You might have a home and think, “Man, the value has gone up,” or “I’ve paid it down a lot, and I want to refinance this.” Maybe you want to pull some money out, or maybe you don’t. Either way, you still need to do an appraisal, income documentation, and get everything together as you would for a brand new loan.

With a VA Cash-Out Refinance, if you’re trying to pull money out of the home, you effectively have to go through the whole loan process again: appraisal, income documentation, and a hard credit check. It’s essentially the same process you went through when you first purchased the home with a mortgage.

Some of the risks could be if your income or credit has changed, which could jeopardize your ability to get that loan. However, the benefit of the VA Cash-Out Refinance is that you can take some cash out. You pay off the old loan, and whatever’s left over can be used for whatever you like. Or, you could just leave the money in the home without taking it out.

VA IRRRL (Streamline Refinance)

On the other hand, if you’re thinking, “Hey, Evan, I want to refinance, but I don’t want to take any money out. I just want to lower my interest rate or change the loan term,” then we should look at the VA IRRRL, the Interest Rate Reduction Refinance Loan, in its streamlined process.

With a VA Streamline Refinance, the VA allows you to do several things, such as:

• No appraisal: You don’t have to worry about the value of the home. If, for some reason, the value has gone down (hopefully not), you might struggle with that in a regular refinance. But with the IRRRL, you don’t have to worry about it.
• No income documentation: We don’t need to ask you again for all the documents from your original purchase, like pay stubs, W-2s, or tax returns. Even if you had rental or business income, we don’t need that documentation in the streamlined process.
• Soft credit check: In some cases, we don’t even need to do a hard credit check; a soft credit pull is enough. We just need to make sure you haven’t missed any recent payments.

The great thing about this process is that it’s smoother and generally costs less. There’s no appraisal, and fees are sometimes lighter because it’s streamlined and simple. However, it’s still a new loan, so you’ll need to redo some servicing items, like setting up new accounts. But overall, it’s simplified.

Why the VA IRRRL is Unique

Some people think this sounds too good to be true, but the reason this works is that the VA guarantees the loan no matter what. This is where it’s unique compared to conventional loans, which can be bought and sold by different entities. The VA ultimately guarantees the loan, so even if the home’s value or your income has changed, the VA is willing to take the risk.

Their goal is to lower your interest rate, because if they can, it decreases the odds that they’ll have to take over the home or deal with foreclosure. This is why VA loans historically have lower foreclosure rates compared to riskier loan types out there.

Final Thoughts

In this video, we’ve touched on the two major types of refinances for a VA loan: the VA Cash-Out Refinance, which is more traditional, and the VA IRRRL, which is what I like to call the “secret weapon” or your “favorite Uncle Earl.” Because hey, we’d all love to have a rich uncle to help us out! While I don’t have one, I know some folks do, and an IRRRL can be just like having one—helping you lower your payments when rates come down.

My name is Evan Kaufman. If you have any questions, feel free to reach out. I’m happy to assist you with your next VA loan.

Take care. Bye!