Is A VA Cash-Out Refinance Loan The Right Move?

Maximizing Home Equity:

A VA cash-out refinance loan allows homeowners to convert their home equity into cash. This valuable option enables eligible veterans and military service members to secure capital or financing when needed.

Continue reading to discover the workings of refinance loans and determine if a VA cash-out refinance is right for you.

Understanding VA Cash-Out Refinance

A VA cash-out refinance offers eligible veterans, active duty service members, and their surviving spouses the chance to secure a loan up to the total appraised value of their home.

This VA-backed financing can clear debts and liens, fund home upgrades, or switch a non-VA loan to a VA loan, typically offering more favorable conditions than traditional loans.

In essence, it enables the conversion of your mortgage into a government-supported loan or your home equity into cash, which can then be used to cover various expenses.

Who Qualifies for a VA Cash-Out Refinance?

Initially, holding a VA loan is optional for the program. You’re eligible for a VA cash-out loan regardless of your current mortgage type, whether a 15-year, 30-year, or adjustable-rate mortgage.

Service Requirements

Eligibility is specific, with certain service conditions required, including:

• Active duty for at least 24 continuous months or mobilization for 90 days.
• Service before August 1, 1990, for a minimum of 181 continuous days.
• At least six years of service in the Reserves or National Guard, or 90 days under Title 10 or Title 32, with at least 30 consecutive days.
• Medical discharge can waive the service time requirements.
• Being the surviving spouse of a service member who died in the line of duty.

Certificate Of Eligibility

A Department of Veteran Affairs Certificate of Eligibility (COE) is necessary to prove you meet these conditions, with an honorable discharge required for veterans and service members applying.

Lender Requirements

Qualification for converting your home equity into cash also depends on meeting lenders’ minimum credit score and debt-to-income ratio standards. Moreover, the property you’re refinancing must be your primary residence. The VA permits eligible Veterans to refinance their homes with a loan-to-value (LTV) ratio of up to 100%. However, most lenders typically limit the LTV ratio to 90%, including any applicable VA Funding Fee.

VA cashout vs VA IRRRL

Supported by the Department of Veterans Affairs, VA cash-out refinance loans are perceived as less risky to lenders, leading to generally lower interest rates than conventional cash-out refinance loans. Always check the latest refinance rates for current information.

Closing costs, such as appraisal fees, loan origination fees, and title insurance, are part of the expenses you’ll incur when you finalize a VA cash-out refinance. Additionally, you might need to cover a VA cash-refinancing or origination fee.

A VA cash-out refinance is available for individuals without an existing VA loan. Those with an existing VA loan might consider a VA streamline refinance or Interest Rate Reduction Refinance Loan (IRRRL) to lower their interest rate or extend the loan term. 

The IRRRL program further benefits from a lower, one-time VA funding fee, eliminating the need for monthly mortgage insurance premiums. This fee, about 0.5% of the total loan amount, can be integrated into the loan or paid upfront. Waivers for the funding fee are available for VA disability recipients, surviving spouses of veterans who died in service or from service-connected disabilities, and Purple Heart recipients on active duty.

Applying for a VA Cash-Out Refinance

The application process for a VA cash-out refinance mirrors the steps for securing a conventional loan, including:

• Investigating potential lenders
• Examining loan terms
• Choosing a bank or lending institution
• Filing a loan application

FAQs on VA Cash-Out Refinance

Your VA Loan Cash-Out Refinance Questions Answered:

Do I need to withdraw cash with a VA cash-out refinance?

Interestingly, no. For those who already have a VA mortgage and wish to refrain from extracting any cash, opting for a VA streamlined refinance could be the most straightforward choice. Remember to evaluate different lenders and their offerings as you explore your options.

What credit score is required for a VA cash-out refinance?

The required credit score can vary by lender and willingness to assume risk, although the VA doesn’t set a minimum credit score. 

Ensure you discuss with your lender the qualifications necessary for eligibility before proceeding with a VA cash-out refinance.

Can we do a 100% VA cash-out refinance?

Indeed! Many lenders may allow you to refinance up to 100% of your home’s loan-to-value (LTV) ratio with a VA cash-out refinance. Some may cap borrowing at 90% of the property’s valued price. Discussing with your lender is crucial to understanding how much you can withdraw during refinancing.

Conclusion: Maximizing Benefits with VA Cash-Out Refinance

VA cash-out refinance loans offer a valuable benefit for qualified borrowers, enabling them to access additional funds for home improvements, retirement savings, or education costs.

By opting for these refinancing options, you might secure more favorable loan conditions, such as reduced interest rates, lower monthly payments, or no mortgage insurance fees, especially when transitioning from a conventional to a VA-backed loan.

Applying for a VA cash-out loan could significantly enhance your financial health or provide a more extended repayment period. Ensure eligibility before applying and compare options across different lenders.