If you have a VA loan and you want to refinance it, you have a few options. If you want to stick with a VA loan, you can refinance with the VA IRRRL (streamline refinance program) or the VA cash-out program. The VA cash-out loan allows you to take money out of the equity of your home – up to 100%!
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But what’s the cost to refinance? You know that the VA limited the costs you could pay when you purchased the home, but do they do the same with a refinance?
The VA Funding Fee
First, let’s discuss the VA fee you’ll pay when you refinance. Just as you paid a funding fee when you bought the home (in most cases), you’ll pay it every time you refinance too.
The type of refinance you choose determines what you’ll pay to refinance the loan. The fees are as follows:
- VA IRRRL – 0.5% of the loan amount
- VA cash-out refinance – 2.15% of the loan amount
This fee goes directly to the VA, not to the lender. You may be able to wrap it into your loan amount if you don’t have the cash.
The Lender Closing Costs
The costs the lender can charge you are about the same that they could charge you when you bought the home. They include:
- Origination fee – The lender can charge you up to a 1% origination fee
- Discount fee – This helps you get a lower interest rate by paying the fee upfront
- Appraisal fee – If you use the cash-out refinance option, you’ll need an appraisal
- Title work – You’ll need title work done no matter the type of refinance
- Credit report fee – Lenders definitely pull your credit for the cash-out refinance, but some might for the IRRRL too
- Recording fee – Each mortgage must be recorded with the county no matter the type of refinance
These are the average closing costs lenders can charge. Of course, you’ll also have to pay any prepaid interest that is due as well as any money to set up your escrow account.
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The Different Lender Charges
Each lender will charge different fees for the VA loan refinance. It pays to shop around to find the lender with the best fees. Don’t focus on just fees or just the interest rate, though. Focus on the combination. For example, one lender may charge a rather low interest rate, but have excessive fees (up to what the VA allows). Another lender may charge a high interest rate, but have fewer fees.
What is right for you will depend on how long you plan to stay in the home. If you plan to be in it for the long-term, you’ll want the loan with the lower interest. This way you will minimize how much interest you pay over the life of the loan. If you won’t be in the home for too long, you may want to take the loan with the lower fees, but higher interest. Since you’ll only pay the interest for the short-term, it doesn’t make sense to pay more fees to lower an interest rate you won’t pay for long.
While we can’t tell you the exact cost of a VA loan refinance, you can at least have an idea of what you’ll pay. You can use your Settlement Statement from your closing to get a ballpark figure of what each of the above figures cost you to know what a refinance might cost in your area.
