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VA Guaranteed Loan (Joy B. 488) The US Department of Veteran Affairs originally conceived the VA home loan guaranty program in 1944. The objective of the VA loan program was to diminish the economic problems of post war adjustments for millions of men and women serving in the armed forces. Since its inception, the VA has guaranteed over 18 million home loans enabling veterans to purchase or construct a home, or refinance another home loan on more favorable terms.
What Is a VA Guaranteed Loan VA guaranteed loans are made by private lenders or mortgage companies to eligible veterans for the purchase or refinance of a home. To get a VA loan, you must apply to the lender. Once your loan is approved, the VA will guarantee a portion of it to the lender. The guarantee protects the lender against a loss up to the amount of the guarantee allowing for more favorable purchase or refinance terms.
There is no maximum loan amount for a VA loan, but lenders will generally limit VA loans to $417,000, the current conforming loan limit. For loans up to this amount, it is usually possible for qualified veterans to purchase a home with no down payment or refinance their existing even if they have no home equity.
Who Is Eligible Retired veterans as well as those on active duty for the US Armed Forces may be eligible for a VA loan for their refinance. The are many limiting factors, but if you have served at least 181 days of active duty (90 days during the Gulf War) you may eligible for a VA loan guarantee.
How to Refinance Your VA Loan The VA does allow for an Interest Rate Reduction Refinancing Loan, known as the IRRRL. You could also see it referred to as a streamline or VA to VA refinance loan. The IRRRL allows veterans to refinance their existing loan provided it was originally approved with a VA guarantee loan.
The IRRRL also requires that when you refinance your existing VA loan, it must result in a lower interest rate, unless you are changing from an existing VA guaranteed adjustable rate mortgage (ARM) to a fixed rate. When you are refinancing from an existing VA ARM loan to a fixed rate, the interest rate may increase.
An IRRRL may also be done with "no money out of pocket" by including all the closing costs into the new loan using your home equity. The loan may not exceed the total of the outstanding balance of the existing VA loan, plus all the allowable fees and closing costs, as well as up to $6,000 of energy efficiency improvements. In other words, you cannot refinance your VA loan to tap into your home equity for cash out proceeds.
If you are a veteran and are considering refinancing your existing VA loan, I strongly urge you to contact several lenders. There may be big difference in the terms offered by various lenders.
Sources: Department of Veteran Affairs -- A Legislative History of the VA Home Loan Guarantee Program Get
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