The VA’s Cash-Out refinance loan gives qualified veterans the opportunity to refinance their conventional or VA loan into a lower rate while extracting cash from the home’s equity.
With the VA Cash-Out refinance, you have the opportunity to turn the equity in your home into cash. This shouldn’t be confused with a home equity loan, which is a second loan that runs alongside your current loan. The VA Cash-Out refinance loan replaces your existing mortgage instead of complementing it.
While it might sound odd, homeowners aren’t required to take out cash with these refinance loans. That means qualified veterans with non-VA loans can use this benefit to simply take advantage of lower rates, or to get out of an adjustable-rate loan, or to eliminate costly mortgage insurance with other loan types.
VA Cash-Out Facts
The process for getting a VA-Cash Out refinance is similar to the process for a typical VA purchase loan, including credit underwriting, an appraisal and more.
- VA lenders are often looking for a credit score of at least 620, but minimums can differ based on the lender, the loan amount and more.
- You must certify that you intend to occupy the property being refinanced.
- Homeowners can finance their closing costs as long as they can meet loan-to-value guidelines.
- Homeowners can finance the VA Funding Fee, but they will need to meet meet lender loan-to-value guidelines.
- Homeowners in Texas may encounter restrictions regarding Cash-Out refinance loans.
Ways to Use Your Cash Back:
- Paying down or eliminating debts
- Making home improvements or repairs
- Covering emergency expenses
- Paying college costs
Lenders may have caps in place for your loan-to-value ratio, meaning you might still need to keep some equity in the property after the refinance. These kinds of caps can vary by lender.
Cash-Out Considerations
First, unlike a VA Streamline refinance, homeowners can’t simply roll their closing costs on top of their loan. But you can finance your closing costs into your new loan as long as you can still meet a lender’s requirements for loan-to-value ratio. These costs and fees can vary based on a host of factors but typically range from 3 to 5 percent of the loan amount.
In addition, most homeowners have to contend with the VA Funding Fee, which goes directly to the Department of Veterans Affairs to help keep the loan program going. This fee is typically 2.3 percent of the loan amount for first-time users of the VA loan and 3.6 percent for veterans who’ve used the benefit before. Borrowers who receive compensation for a service-connected disability and eligible surviving spouses do not pay this fee.
Homeowners can finance the funding fee into their overall loan amount as long as they meet a lender’s loan-to-value guidelines.
Veterans should evaluate VA refinance offers closely, especially unsolicited mailers and advertisements. These often sound too good to be true, and that’s because they are. Some lenders will promise big benefits, but hide a bunch of costs and fees in the fine print. Others won’t clearly explain they’re offering a riskier adjustable-rate loan.
A Veterans United loan specialist can walk you through the fine print of any offer you receive and help you assess whether it’s valid.
Whether refinancing a conventional, FHA or USDA loan, the VA cash-out refinance option is available regardless of loan type. Many homeowners choose the VA cash-out refinance option over other types of loans because of the ability to repay the loan over a longer period of time, and typically, the VA cash-out refinance option comes with a lower interest rate.
To better understand if a VA Cash-Out refinance is right for you and your financial situation, contact the experts at Veterans United Home Loans.
Cash-Out Refinance FAQs
Seasoning periods can vary by lender, but the minimum in most cases is 210 days from due date of the first monthly mortgage payment on the loan being refinanced. To be eligible for a VA Cash-Out refinance, borrowers must meet credit, income and appraisal guidelines, similar to a VA purchase loan.
What are all the costs associated with VA Cash-Out refinance?
Market conditions affect VA Cash-Out rates daily. Rates can and will vary by lender, but VA loans continue to have the lowest average fixed rate on the market. Closing costs can also vary by lender, although the VA limits what they can charge to cover their own costs to 1 percent of the loan amount payday loans Sandusky. The VA sets the appraisal fee, but homeowners can shop around for the best deal on other third-party costs.
For first-time users of the VA loan benefit, the VA Funding Fee on a Cash-Out refinance is 2.3 percent. For those reusing their benefit, the VA Funding Fee on a Cash-Out refinance is 3.6 percent.
How long does it take to close on a VA Cash-Out refinance?
VA Cash-Out refinances typically take 45 to 60 days to close. But every homeowner’s situation is different, and some Cash-Outs might closer faster. Talk with a VA loan expert to get an accurate estimate on closing time.
What are VA loan equity reserves?
Talking about VA loan equity reserves is another way of describing home equity. You may have received a letter in the mail telling you to tap into your “VA Loan Equity Reserves,” which is really just a fancy way of saying you may be eligible for a VA Cash-Out refinance. Equity is the monetary difference between what you owe on your mortgage and your home’s value.
