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  • VA Loan Refinance Waiting Period

    Unlike most other mortgage loans, the VA program does have a a minimum waiting period and set of guidelines for refinancing an existing VA mortgage loan into another VA mortgage loan. 

    The primary reason for the following guidelines is to ensure their is a benefit to the veteran in refinancing, and to prevent bad VA lenders for churning loans, and taking advantage of people.

    Seasoning / Waiting Period

    Your new VA loan must meet meet BOTH of the following in order to refinance a current VA loan into a new VA loan:

    1. The first monthly payment of the loan being refinanced was made 210 days or more prior to the closing date of the refinancing loan; and
    2. Six monthly payments have been made on the loan being refinanced

    Three Different Types OF VA Refinance Loans

    The three different type of VA refinance loan come with some different rules.  See Unintended Consequences below:

    1. An Interest Rate Reduction Refinancing Loan (IRRRL) is a refinancing loan made to refinance an existing VA-guaranteed home loan at a lower interest rate. 
    2. TYPE I Cash-Out Refinance is a refinancing loan in which the loan amount (including VA funding fee) does NOT exceed the payoff amount of the loan being refinanced. 
    3. TYPE II Cash-Out Refinance is a refinancing loan in which the loan amount (including VA funding fee) exceeds the payoff amount of the loan being refinanced. 

    Net Tangible Benefits Test (NTB)

    All VA cash out refinancing loans must pass the NTB test. You are considered to have passed if your new VA loans meets at least one of the following items:

    • (a)  The new loan eliminates monthly mortgage insurance; or 
    • (b)  Loan term of the new loan is less than the loan term of the loan being refinanced; or 
    • (c)  Interest rate of the new loan is less than the interest rate of the loan being refinanced

    (Note: If the loan being refinanced had an adjustable interest rate or was modified, the current interest rate must be used when determining if this requirement has been met.); or

    • (d)  The monthly (principal and interest) payment of the new loan is less than the monthly (principal and interest) payment of the loan being refinanced; or
    • (e) The Veteran’s monthly residual income is higher as a result of the new loan. (residual income, including refinancing monthly PITI (principal, interest, taxes, and insurance) payment vs. current residual income, including monthly PITI payment of the loan being refinanced.) In cases where TI amounts are changing between the application date and the closing date of the refinance transaction, the new TI amount will be used in determining residual income for both the current and refinanced loan); or 
    • (f)  The new loan is used to payoff the Veteran’s interim construction loan; or
    • (g)  The new loan LTV is equal to or less than 90 percent of the reasonable value of the home, i.e. LTV ≤ 90%; or
    • (h)  Refinance of an adjustable-rate mortgage to a fixed-rate mortgage.

    Recoup Closing Cost Guidelines

    Your new VA refinance loan must also meet the time to recoup closing cost guidelines, which is that:

    The number of months to recoup closing costs, and allowable fees can NOT exceed 36 months.

    Note that pre-paid expenses (tax and insurance escrows), and any VA funding fee (if applicable) are not included in the cost calculation.

    IF the veterans payment INCREASES due to a decreased loan term (like moving down to a 15-yr or 20-yr loan), or the conversion of an adjustable rate loan (ARM), the veteran can NOT incur ANY fees, or closing costs costs (other than pre-paid expenses of taxes and insurance) and the funding fee.

    Unintended Consequences Of These Rules

    While well intentioned, unfortunately there are some unintended consequences of these rules that frustrate veterans.

    A prime example is the paragraph above about the lender not being able to charge closing costs if you are reducing your term. Sounds good to the veteran, but there ARE closing costs on all loans, and they must be paid. So the only way for the lender to allow you to refinance AND meet the guidelines is to convert the normal closing costs (making them zero) into a higher interest rate for your new loan.

    Once your Cambria Mortgage Loan Officer has your full VA LOAN APPLICATION, they will happily go over all guidelines that apply to you. Free free to call our VA loan experts with questions at (651) 552-3681