Choosing a VA Lender and Avoiding Refinance Scams

Why your lender choice matters

VA guarantees the loan, but private lenders set the rate and many of the fees. Two lenders can quote very different deals on the same day for the same Veteran. Shopping around is the easiest way to save money.

What to look for in a VA lender

• VA experience. Lenders who close many VA loans know the rules on entitlement, appraisals and residual income.
• Clear pricing. They give you a Loan Estimate quickly and explain each fee.
• Fair overlays. Ask about their minimum credit score, DTI limits and rules for condos, manufactured homes and jumbo loans.
• Good communication. They return calls and keep you updated.
• Local knowledge of appraisers and the Tidewater process can help in tight markets.

Step by step: compare lenders

1. Get your COE so lenders see your real entitlement and funding fee status.
2. Ask three or more lenders for Loan Estimates on the same day, with the same loan amount and term.
3. Compare page 2, Section A (origination charges) and the points in each quote.
4. Compare the APR and the monthly payment.
5. Check "cash to close" on page 2.
6. Ask each lender to beat the best offer.
7. Lock your rate in writing once you choose.

Shopping within a short window, usually a couple of weeks, limits the effect on your credit score because credit scoring models treat many mortgage inquiries as one.

Refinance scams and churning

Veterans are a big target for refinance marketing. Some offers are fine, but some are misleading or worse. VA does not send refinance offers. Watch for:

• Mailers that look official, with eagles, flags, or words like "VA Benefit Notice" or a fake "deadline."
• Promises to skip one or two payments. You are not skipping anything; the interest is folded into the new loan.
• Very low teaser rates that turn out to be adjustable or need large points.
• Pressure to refinance again soon after your last loan. This is called churning, and it eats up your equity through repeated fees.
• Cash-out pitches that push you to borrow more than you need.

Rules that protect you

Congress added protections in 2018 to slow churning:

• Seasoning: VA will not guarantee a refinance of a VA loan until the later of six monthly payments or 210 days after the first payment due date.
• Net tangible benefit: An IRRRL must lower your fixed rate by at least 0.50% (2.00% if switching to an ARM), or provide another clear benefit.
• Recoupment: IRRRL fees must be earned back through savings within 36 months.
• Fee limits: The lender's flat charge is capped at 1% of the loan.

Questions to ask any refinance offer

• How much will my total costs be, and how long until I break even?
• Is the rate fixed or adjustable?
• Am I paying points?
• Will my loan term reset to 30 years?
• How much equity will I have after the refinance?

Where to report problems

If you think a lender misled you, you can submit a complaint to the Consumer Financial Protection Bureau or tell VA's Loan Guaranty Service. Keep copies of mailers and emails.

Bottom line

The best VA lender for you is the one that offers a fair rate, clear fees and good service. Shop at least three, read every Loan Estimate, and treat any offer that sounds too good with healthy suspicion.