Are you a veteran looking to refinance? You may have several options at your disposal, depending on the type of loan you have now. If you have a current VA loan, the VA streamline loan may be an option. If you have any other type of loan, you’ll have to use the VA cash-out refinance in order to use your VA benefit. Does either loan require an appraisal?
The answer isn’t as cut and dry as you might think. Below we discuss the various ways lenders approach the need for home valuation.
The VA Streamline Refinance and the Appraisal
This loan is where the question about an appraisal gets tricky. Technically the VA doesn’t require an appraisal for the VA streamline refinance loan. All they require is:
- Timely mortgage payments for the last 12 months
- A net tangible benefit for the refinance
Lenders often require a little bit more than that though, just to protect their interest in the property. For example, some lenders will pull your credit. They want to know that you have at least a 620 credit score and a clean credit history over the last 12 months.
Then there’s the appraisal. The VA doesn’t require it. But the lenders funding the loan may want to know the true value of your home. Are you upside down on your loan? Did your home’s value decline? Did it appreciate? Lenders like to know how much collateral they have in your home. In other words, how much equity do you have that the lender could liquidate should you default on the loan?
Not all lenders require the appraisal. Some will require a full appraisal, where the appraiser comes into the home and inspects it, giving the lender their opinion of the fair market value of the home. Other lenders are okay with a drive-by appraisal, where the appraiser just inspects the exterior of the property and bases the market value on the comparable properties nearby. Finally, some lenders won’t require an appraisal at all. They may run an automatic valuation on the home using their software to determine the average value for the homes in your area and be okay with that.
The VA Cash-Out Refinance and the Appraisal
The VA cash-out refinance is a little more cut and dry. Plain and simple, you need an appraisal. It doesn’t matter if you are taking cash out of your home’s equity or not. Lenders need to know the true value of the home. They also need to fully verify your credit score, income, and debt ratio.
The VA calls the loan the cash-out loan, but you may just be refinancing from a conventional or FHA loan into a VA loan. You may not take any cash out of the property, but will be considered cash-out because you are changing programs.
Your home’s value will have to be at least 100% of the loan amount. If its value is lower than the loan amount you need, you can’t refinance with the VA cash-out refinance. That’s the beauty of the VA streamline loan if you are able to find a lender that doesn’t run your home’s value. You can refinance even if you are upside down on your loan.
As with any loan, you’ll need to shop around to find a lender that will meet your expectations. If you know your home lost value, but you want to refinance your VA loan, you’ll need a lender that doesn’t require appraisals. If you know your home appreciated and you want to take cash out of it, or you want to refinance out of another program, you can use the VA cash-out loan. Look for lenders that are experienced in VA loans and that are able to offer you the best interest rate, terms, and APR for the best outcome of the refinance process.