Yes. That’s true if you already have a loan backed by the U.S. Department of Veterans Affairs (VA). It’s also true if you’re hoping to refinance from another kind of mortgage into a VA loan. 

As with any kind of refinance, VA refinancing doesn’t mean changing the details of your existing loan. Instead, you get an entirely new loan, which you use to pay off and close out your old loan. 

A refi can come with some serious benefits, but it also means paying closing costs all over again. When you refinance a VA loan, a new round of funding fees come into the picture, too. 

So, can you refinance a VA loan? Absolutely. Should you? That depends. 

To help you make a smart decision for yourself, let’s look at the two kinds of refinancing backed by the Department of Veterans Affairs. 

An overview of your options to refinance a VA loan

The VA guarantees two specific kinds of refinances:

• Interest rate reduction refinance loans (IRRRLs): The VA designed these to offer current VA borrowers a streamlined way to refinance. To be eligible, you need to be able to prove that you’ll see some significant financial upside, like a lower monthly payment because you can get a better interest rate. IRRRLs come with less paperwork and lower fees than the other VA refinancing option. 
• Cash-out refinances: This is the name the VA gives to all of its other refinances. You can, as the name suggests, use this option for a cash-out refi, which lets you liquidate some of your equity in your home. That turns the value you’ve built up in your home into cash in your pocket. If you don’t want to cash out equity, you can also technically use this option to complete a rate-and-term refinance. 

To help you better understand these two options to refinance a VA loan — and which one might be best for you — let’s go over some key features.

Generally, if you’ve decided it’s the right time to refinance, an IRRRL will save you time and money. If you really want or need to pull cash out of your house or you don’t currently have a VA loan, though, a cash-out refinance gives you the option to move forward.

Interest rate reduction refinance loan (IRRRL)

The VA’s IRRRL comes with some notable benefits like:

• Less cost due to the lower funding fee
• Fewer underwriting requirements (you might not need to verify your income or get a hard credit check, for example)
• No appraisal requirement

In order to qualify for this kind of refinance, your new VA loan needs to deliver what the U.S. Code calls a “net tangible benefit.” Per Title 38 of the U.S. Code (Veterans’ Benefits), § 3709, any of the following satisfies the net tangible benefit requirements:

• Moving from a fixed-rate mortgage to a new fixed-rate mortgage with an interest rate that’s at least 0.5% lower 
• Moving from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) with an interest rate that’s at least 2% lower

If you look at the Code, you’ll see the lower interest rate requirements called out in basis points, not percentages. Each basis point equals 0.01%. We put them in percentages because that’s generally easier to understand. 

Your lower interest rate can’t come just from paying for discount points unless you’re paying for the points at closing and the points aren’t added to your principal loan amount (with some exceptions)

Additional interpretation of the Code from the VA has expanded net tangible benefit a bit. You can also get an IRRRL if you’re:

• Stabilizing your loan by moving from an ARM to a fixed interest rate, even if you won’t get a lower rate. 
• Refinancing to a shorter-term loan (e.g., a 15-year mortgage instead of a 30-year one), because this will save you in interest over time. 
• Going to have a new loan-to-value (LTV) ratio that’s equal to or less than 90% of the reasonable value of the home.

If any of that fits your situation, you can get an IRRRL, complete with its lower funding fee and lessened paperwork requirement. 

Cash-out refinance

VA cash-out refinances more closely mirror traditional refinances, or what refinancing any other mortgage looks like. 

You can use this option if you have a current VA loan and you want to get a new, bigger VA loan, then pocket the difference. You can then use that cash however you want. Some people remodel. Others pay for education or pay off/down higher-interest debt. 

The cash-out refi is also an option if you want to refinance a VA loan but you have a non-VA loan right now. The key here is that you need to be eligible for VA-backed home financing. That generally means serving 90 days during wartime or 181 days in peacetime. We have a deeper dive to help you figure out if you’re eligible. 

With a cash-out refinance on a VA loan, you have to go through pretty much the same process you did when you got your mortgage in the first place. You’ll need to provide income verification and allow for a hard credit check. You’ll also usually need to pay for an appraisal. And you’ll be subject to the VA funding fee for cash-out refinances (2.15% if it’s your first use or 3.3% for every time after that). 

Exploring your options to refinance a VA loan

You should have a better feel for which type of VA refi best fits your situation. The next step is to start looking for a lender.

We’ve got you covered with rate tables of the latest available for IRRRLs and cash-out refinances. All of the lenders on those tables work with the VA and can help you explore your refi in more detail.

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