Andrew Vierra, VA Home Loan Specialist and Branch Manager with WealthWise Mortgage Planning and VALoansOfCalifornia.com, discusses how you can use your VA home loan benefit to refinance out of your FHA loan into a VA loan.
One of the challenges that we see when veterans try to use the VA home loan benefit to buy a home is many people in the financial and real estate community are unfamiliar with how the VA home loan benefit works.
When you talk to your real estate agent or financial professional about using the VA home loan benefit, they may start off saying that they can help you, only to ask you if you have some money set aside so they can put you in a FHA loan. It’s possible they may mention that people don’t like working with the VA home loan program because they believe there’s a lot of challenges with it, thus deterring you from using your VA home loan.
If you were to answer yes, and mention that you do have money to put down, more often than not you will be put in a FHA loan. Why? Because sellers are more comfortable with this loan and they tempt you with the idea that you may be able to get into a home much faster. So you bite the bait, because you’re ready to buy a home now.
Now you’re in a FHA loan, you have bought your home and you move on without understanding the challenges you may face down the line because you are not using VA.
For example, let’s say you were buying a $300,000 home. If you are eligible to use your VA home loan benefit and you chose FHA instead of VA, in the first three years, between the required down payment and monthly mortgage insurance on the FHA loan, you will pay almost $20,000 more out of your pocket using FHA than VA.
Although you are in FHA, you can use your VA Home Loan Benefit and refinance out of your FHA loan! By doing this, you will also eliminate the monthly Private Mortgage Insurance and depending on the value of your home, you can potentially get back the down payment that was required. And theoretically, even if interest rates are higher on the VA loan than your FHA loan at the time, by getting rid of the monthly mortgage insurance your monthly payment will decrease.
If you are eligible for the VA home loan, you can benefit from looking into this to see if it makes sense. In order for you to refinance from FHA to VA, you must:
- Wait 210 days after the first mortgage payment to when the new loan closes.
- Made six on time monthly payments
We can do a new VA loan up to 100% of the value home. It is similar to you buying the house and putting no money down. If you used your VA home loan benefit to buy when doing the new loan you now can take out 100% of the value.
The biggest thing is to look at your current situation. Send me a copy of your current mortgage statement. It’s going to show me everything that I need to know so I can do a quick calculation to see if it makes sense for you to refinance into the VA loan. There’s no cost associated with doing calculations either and if it doesn’t make sense, you do nothing. But if it does, you could be saving a bunch of money every month!