VA Cash-Out Refinance Loan
When a qualified borrower replaces their existing mortgage with a loan secured by the Department of Veterans Affairs (VA), they are able to access their existing home equity.
This programme offers many of the same advantages as a typical VA home purchase loan while offering borrowers the opportunity to access funds from their home equity for significant purchases or home repairs. It is accessible to qualified Veterans, military service members, and their spouses. You do not need to be a current VA borrower to be eligible for VA Cash-Out refinances, since they are accessible to homeowners with both VA and non-VA loans.
A VA Cash-Out refinancing might be a wonderful choice if you want to take cash out of your house or benefit from lower rates and conditions. We’ll go over all you need to know about this programme in this guide so you can determine if it’s a good fit for you.
This programme offers many of the same advantages as a typical VA home purchase loan while offering borrowers the opportunity to access funds from their home equity for significant purchases or home repairs. It is accessible to qualified Veterans, military service members, and their spouses. You do not need to be a current VA borrower to be eligible for VA Cash-Out refinances, since they are accessible to homeowners with both VA and non-VA loans.
A VA Cash-Out refinancing might be a wonderful choice if you want to take cash out of your house or benefit from lower rates and conditions. We’ll go over all you need to know about this programme in this guide so you can determine if it’s a good fit for you.
Benefits of a VA Cash-Out Refi
Any qualifying homeowner can benefit from a VA Cash-Out loan since it is a flexible mortgage choice. Here are a few advantages of this kind of refinancing.
You Can Refinance Any Type of Mortgage
The VA Cash-Out refinance loan, in contrast to the VA Interest-Rate Reduction Refinance Loan (IRRRL), is accessible to any homeowner, not only those who already hold VA loans.
As long as you satisfy the VA’s eligibility standards and the requirements of your lender, you are eligible to benefit from this programme whether you have a conventional loan or another government-backed loan.
As long as you satisfy the VA’s eligibility standards and the requirements of your lender, you are eligible to benefit from this programme whether you have a conventional loan or another government-backed loan.
You Can Drop Your Mortgage Insurance
You can also stop paying any existing private mortgage insurance (PMI) under the terms of your current loan when you refinance a non-VA loan under this programme. No matter how much money you put down, the VA doesn’t demand PMI for its loans.
However, if it’s your first time utilising your VA home loan benefit, you will be required to pay the VA Cash-Out refinancing funding cost, which is 2.3% of the entire loan amount. Below, we’ll go into more depth about this.
However, if it’s your first time utilising your VA home loan benefit, you will be required to pay the VA Cash-Out refinancing funding cost, which is 2.3% of the entire loan amount. Below, we’ll go into more depth about this.
You Can Tap the Equity in Your Home for Cash
One of the major advantages of a VA Cash-Out refinance is the same as it is for any cash-out refinance: the potential to turn your home equity into cash. A VA Cash-Out refinancing may be one of the least expensive methods to pay for home improvements or other significant expenditures because mortgage rates are frequently lower than interest rates on other forms of debt (such as credit cards).
For instance, let’s assume you wish to pay for a $40,000 kitchen renovation. If you have that much equity in your house, you may utilise a cash-out refinance to pay for it over a period of 15 to 30 years at an interest rate of around 5% to 6%. That is far less expensive than using a credit card at 17% interest.
For instance, let’s assume you wish to pay for a $40,000 kitchen renovation. If you have that much equity in your house, you may utilise a cash-out refinance to pay for it over a period of 15 to 30 years at an interest rate of around 5% to 6%. That is far less expensive than using a credit card at 17% interest.
You May Be Able to Borrow Your Home's Full Value
The VA does not have a maximum loan-to-value (LTV) cap for cash-out refinancing, so you could be able to borrow up to 100% of the value of your house. In many instances, you can also include extra closing fees and the VA financing fee on top of that. But keep in mind that the lender ultimately determines the cap, and many lenders set the maximum LTV for VA Cash-Out at a lower level.
VA Cash-Out Refinance Requirements
There are many requirements for a cash-out refinance that are comparable to those for a VA purchase loan, but there are also some unique requirements for VA Cash-Out refinances. The following are the primary prerequisites for eligibility:
General VA Loan Eligibility
Veterans must fulfil one of the following minimal military service criteria in order to be eligible for a VA loan:
- 90 days of wartime active duty
- 181 days in a year of calm
- 6 years in the National Guard or Reserves
- Be the surviving spouse of a military member who passed away while on duty or as a result of a disability related to their service.
Your VA Certificate of Eligibility, which attests that you fulfil these standards, must be verified by your lender.
Occupancy Requirements
You must live in the home that will be paid for with the VA loan. As such, you need to prove that the home is your primary residence.
Net Benefit Requirements
You must typically realise a net financial benefit from refinancing in order to qualify for a VA refinance. As a result, your loan for a refinancing must:
- you can pay less each month
- lower the interest rate
- help switching a house loan from a variable to a fixed interest rate
Seasoning Requirements
The VA’s “seasoning” standards must be met if you’re refinancing another VA loan. Your existing loan must be older than 210 days and you must have made at least six payments on it, but this varies per lender.
Minimum Property Requirements
You’ll need a VA-specific appraisal if you’re refinancing from a non-VA loan to confirm that your property satisfies the VA’s minimum property requirements (MPRs). The MPRs are made to confirm that your home satisfies the minimal requirements for safety, sanitization, and size for the VA to support your loan.
Lender Borrowing Limits
Even while the VA allows borrowers to borrow up to 100% of the value of their home, certain lenders could require that you keep some equity in your house. Furthermore, a lot of lenders won’t let your monthly loan payments equal more than 41% of your after-tax income.
Available Entitlement
Your existing VA entitlement may also affect the maximum loan amount you are eligible for. You will have less entitlement available and a lower maximum loan amount if you have previously taken out a VA-backed loan but have not yet paid it off in full.
Minimum Credit Requirements
Most lenders require a FICO score of 620 or above for a VA Cash-Out refinancing. Lenders may occasionally accept a FICO score as low as 580.
Keep in mind that the VA doesn’t really supply the money for your cash-out refinancing. Although your lender underwrites the loan, it is backed by it. Check with numerous lenders to assess your possibilities since each will have different restrictions.
Keep in mind that the VA doesn’t really supply the money for your cash-out refinancing. Although your lender underwrites the loan, it is backed by it. Check with numerous lenders to assess your possibilities since each will have different restrictions.
Compare VA Cash-Out Refinance Lenders
See Top LendersHow to Use a VA Cash-Out Loan
VA Cash-Out refinances offer a cheap option to pay for a range of significant costs. Many borrowers use them to pay for house additions or bathroom remodels, among other changes. However, you are not restricted to utilising the money on DIY projects.
For instance, you may pay off high-interest loans or pay for significant medical costs or college tuition using money taken out of your home equity. Once you’ve obtained the loan, you can utilise the funds as you choose. However, using home equity to pay for luxuries like a brand-new high-end entertainment system is typically not a good idea. These things’ worth won’t hold over for the duration of the loan.
For instance, you may pay off high-interest loans or pay for significant medical costs or college tuition using money taken out of your home equity. Once you’ve obtained the loan, you can utilise the funds as you choose. However, using home equity to pay for luxuries like a brand-new high-end entertainment system is typically not a good idea. These things’ worth won’t hold over for the duration of the loan.
VA Cash-Out vs. Other Loan Options
You have other options besides a VA Cash-Out refinancing if you want to access the equity in your house. A cash-out refinancing replaces your current mortgage, so in some situations it might not even be the best option. It might not make sense to refinance (and the VA might not approve it) if interest rates are higher now than they were when you took out your initial loan, for example, only to have your interest and monthly payments increase.
You may think about a home equity line of credit in such case. This second mortgage, sometimes referred to as a HELOC, enables you to access home equity but does not totally replace your existing loan. Therefore, the second loan would just have a higher interest rate and may have different loan terms.
In some circumstances, you might be able to obtain a loan specifically tailored to your intended use, such as a student loan for tuition costs. But keep in mind that unsecured loans often have higher interest rates than a VA Cash-Out refinancing. However, this approach has the advantage that you are not using your house as collateral.
You may think about a home equity line of credit in such case. This second mortgage, sometimes referred to as a HELOC, enables you to access home equity but does not totally replace your existing loan. Therefore, the second loan would just have a higher interest rate and may have different loan terms.
In some circumstances, you might be able to obtain a loan specifically tailored to your intended use, such as a student loan for tuition costs. But keep in mind that unsecured loans often have higher interest rates than a VA Cash-Out refinancing. However, this approach has the advantage that you are not using your house as collateral.
Cost of a VA Cash-Out Refinance
Refinancing costs money. Similar to your initial mortgage, closing expenses are needed for a VA Cash-Out refinancing. The VA funding fee is the most important of these, as was already mentioned. This will be 2.3% of your total loan amount if you are using your VA home loan benefit for the first time. Your financing charge, if you’ve previously financed a purchase or refinance with the VA, will be 3.6% of the entire loan amount.
No matter how much equity you have in your house, the VA financing fee for a first-time VA borrower on a $200,000 loan, for instance, would be $4,600. You would pay $7,200 if it wasn’t your first VA loan.
The costs of a cash-out refinancing may also include appraisal, title, and lender fees. Before you agree to the loan, your lender should provide you a detailed loan estimate that breaks out each of these costs.
Paying for VA Cash-Out Closing Costs
For many borrowers, covering these expenses out of pocket might be a considerable barrier. The VA financing fee and other closing charges are sometimes included into your loan so that you may pay them over time. Remember that doing this will result in you paying more interest overall during the loan’s lifetime. The goal of a cash-out refinancing may be defeated by this strategy because it will also limit the amount of equity you may cash out.
Consider a VA IRRRL instead of a cash-out refinancing if you are currently a VA borrower and want to keep your fees low. The financing charge for this loan is a significantly smaller 0.5%. However, since you cannot turn equity into cash with this loan, it might not be the best choice if that is your main objective.
Consider a VA IRRRL instead of a cash-out refinancing if you are currently a VA borrower and want to keep your fees low. The financing charge for this loan is a significantly smaller 0.5%. However, since you cannot turn equity into cash with this loan, it might not be the best choice if that is your main objective.
How to Apply for a VA Cash-Out Refinance
The procedure for applying for a VA Cash-Out refinancing is same to that of applying for a VA purchase loan. You must look for a few lenders who provide this kind of loan and submit an application for preapproval. This enables you to compare key loan parameters including terms, maximum LTV ratios, and VA Cash-Out refinancing rates. It typically takes 45 to 60 days to finalise on your new loan once you’ve chosen a lender.
For more information, visit our VA lender comparison to start the process today.
For more information, visit our VA lender comparison to start the process today.