VA loans offer service members, Veterans, and surviving spouses a tremendous amount of benefits when it comes to buying a home. But, it doesn’t stop there! Once a homeowner, a VA refinance allows for lowering a VA interest rate, monthly payment, and/or loan term. Additionally, a VA regular refinance (sometimes called a VA cash out refinance) provides other benefits. These include paying off a construction loan, consolidating bills, buying another property or other asset, and home improvements. Yet, there have been some rogue lenders out there “churning” VA refinance loans quicker and too often that do not provide sufficient benefits to Veterans. So, we want to clarify a few rules.
How Soon Can You Refinance a VA Loan?
A recent, huge issue has been where some VA lenders are taking advantage of homeowners using a VA refinance. Basically, it deals with lenders charging higher fees with very little benefit to the Veteran. Plus, lenders are refinancing these VA loans much too quickly. So, VA has seasoning requirements in place through the Economic Growth, Regulatory Relief, and Consumer Protection Act. This was signed into law in May 2018. Even though this is a helpful rule to safeguard Veteran homeowners, there is some confusion in the seasoning requirement.
How Soon Can I Use a VA Refinance?
Sometimes, like recently, VA interest rates can drop very quickly. Thus, Veterans want to take advantage of lower interest rates and payments if it makes sense. Plus, VA lenders are looking for opportunities to provide a VA refinance to homeowners. To protect Veterans, the above mentioned Act requires the following before closing a new VA loan:
- 210 day seasoning period starting with the first payment made by the borrower
The problem with this rule is that VA lenders would have a hard time knowing when the first payment was made. Only the existing lender would have quick access to this information. Therefore, this is problematic and restricts Veteran access to a quicker refinance.
Although, The Protect Affordable Mortgages for Veterans Act of 2019 would fix this issue. This Act proposes that the 210 day seasoning period to start with the due date of the first monthly payment. Fortunately, the first payment due date is easily accessible on several closing documents including the closing disclosure, promissory note, and the mortgage (deed of trust in some states). Currently, this has not been finalized or become law. Therefore, VA lenders need to follow the 210 day seasoning period requirement at this time.
VA Refinance of a Construction Loan is the Exception
The only exception to the VA refinance seasoning requirement is when using this loan to pay off a construction loan. In these cases, there is significant and undisputed benefits for the homeowner to pay off a construction loan. The benefits include paying off a loan which is temporary and typically adjustable rate. So there is no timing requirement for a VA loan to refinance a construction loan.
If you are interested in speaking about a VA construction to perm loan, contact a loan officer today!