The VA cash-out refinance has exceptional benefits. It can help you access all the equity in your home. And veterans can use the VA cash-out refi even if their current mortgage is not a VA loan.
This refinance program can be used to convert any type of home loan into a VA mortgage with low rates, no mortgage insurance, and cash-back at closing.
A VA cash-out refinance replaces your existing mortgage loan with a new VA home loan. The new loan typically has a bigger balance than your existing one. And that difference — the extra loan amount — is returned to you as cash-back at closing.
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However, you’re not required to cash out home equity with this loan. You can also use a VA cash-out refinance to replace a non-VA loan with a VA loan and lower your mortgage interest rate.
The VA cash-out loan allows up to a 100 percent loan-to-value ratio (LTV). That means you could get a loan that’s as large as the value of your home. Most other cash-out refinance options cap loan sizes at 80 percent LTV.
The cash back can be used to pay off other debt, pay for home improvements, invest in real estate, or for any other purpose.
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As an example: Say an eligible homeowner owns a property worth $400, 000. Their existing loan balance is $200, 000. They could open a new VA cash-out loan for up to $400, 000 and receive $200, 000 cash back at closing, minus closing costs.
The VA cash-out refinance gives veterans and active-duty service members a chance to refinance into a new loan with a lower interest rate and/or receive cash back.
Today’s VA refinance rates start at just % (% APR), according to our lender network*. Compared to % (% APR) for a 30-year conventional loan, VA financing is a great deal.
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However, this rule is not set in stone. Your own refinance rate depends on factors like your credit score and home equity — so if your personal finances are in a good place, you might get a great cash-out refinance deal.
To qualify for a VA cash-out refinance, you’ll need to meet minimum guidelines set by the Department of Veterans Affairs and by your individual lender. Expect to need:
You’ll establish this by getting a Certificate of Eligibility (COE). Eligibility depends on the amount of time served, and the period in which you served.
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If you have any U.S. military experience whatsoever, it’s worth checking your eligibility for a VA loan. Remember, you can use the VA cash-out refinance to get a new loan, even if your current mortgage is not backed by the VA.
That means it will require more time and paperwork than the VA Interest Rate Reduction Refinance Loan (IRRRL), which has reduced paperwork.
You might also be asked for an itemized list of debts to be paid off with loan proceeds, if you plan to use your cash-out funds for debt consolidation.
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As of January 1, 2020, there are no longer any VA loan limits. Qualified borrowers can finance 100 percent of their home’s value with no down payment. That applies to both VA purchase and refinance loans.
It means you could refinance the home for 100 percent of its value and take all your home equity out as cash.
Under the new rule, you could use a VA cash-out refinance to get a new loan for $700, 000 on that home — allowing you to take the full $200, 000 in cash, less closing costs.
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This doesn’t mean you’re guaranteed a loan that’s 100 percent of your home value. You’ll still have to qualify by meeting your lender’s minimum credit score and DTI guidelines.
For example, the Department of Veterans Affairs allows up to 100% financing. So you can technically withdraw all your home equity using a VA cash-out loan.
This is especially important for homeowners who made a small down payment, or haven’t owned their homes very long. If you have minimal home equity to begin with, you need a VA cash-out lender that will be flexible about your loan-to-value ratio in order to qualify.
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Remember that VA cash-out refinance rates are a little higher than no-cash-out VA refinance rates. So you want to be extra thorough when shopping for a lender that will give you a good deal.
Cash-back isn’t the only reason to open a VA “cash-out” loan. In fact, the name for this loan is a bit misleading.
The VA IRRRL, by comparison, is a VA-to-VA loan program only. You cannot use the IRRRL program if your current loan is FHA or any other type.
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One of the biggest benefits of converting a non-VA loan to a VA loan is that VA loans don’t require ongoing mortgage insurance payments.
A veteran purchased a home with an FHA loan in 2016. The outstanding loan amount is $250, 000. The FHA mortgage insurance costs $175 per month.
The veteran can use a VA cash-out loan to refinance the FHA mortgage into a VA one — even if they do not want to take additional cash out. The veteran now has a no-mortgage-insurance loan and, potentially, a new lower rate.
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In short, you can refinance any home loan into a VA loan with more favorable terms — regardless of the type of loan it is.
The good news (for veterans, anyway) is that the VA cash-out refinance can be opened for up to 100 percent of the home’s value. The VA program can refinance a loan to a lower rate even if the homeowner is nearly underwater.
As an eligible veteran, they could open a VA cash-out loan for 100 percent of the home’s current value, paying off the high-interest loan, and reducing their monthly payment.
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Borrowers can take cash out of their homes at the same time they combine first and second mortgages into a single low-cost VA loan. That’s true even if the current mortgages aren’t VA loans.
For example, let’s say a veteran purchased a home with an FHA loan, then later got a second mortgage from a local bank.
If there is cash left over, the homeowner can cover medical bills, handle a family emergency, start a business, pay off high-interest short-term loans and credit cards, or use the cash for almost any other purpose.
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Yes. As long as you are eligible for a VA mortgage and have enough home equity, VA allows cash-out refinancing to access your home’s cash value. You can also use the VA cash-out loan to switch from a non-VA mortgage into a VA loan with or without cash back.
A VA cash-out refinance replaces your existing VA mortgage with a new VA loan. If you want cash-back at closing, you can take out the new loan for a larger amount than your existing loan, and receive the difference in cash. However, the VA cash-out refinance does not require you to receive cash-back.
A VA cash-out refinance is a good idea for two types of people. Either you want to refinance your current VA mortgage and get cash back at closing, or you have a non-VA mortgage that you want to refinance into a VA loan. For current VA loan holders who do not need cash back at closing, the VA Streamline Refinance is usually a better choice.
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You can obtain a VA cash-out loan for up to 100 percent LTV, plus the VA funding fee. For instance, if a veteran’s home appraises at $100, 000 and they pay a 2.3 percent funding fee, their total loan amount can be up to $102, 300. Veterans and service members can also add the cost of energy-efficient improvements to the total, even if that raises the loan amount above the full value of the home.
A Type 2 VA cash-out refinance means your new loan amount is larger than the loan being refinanced; this is a loan where you actually receive cash-back. A Type 1 VA cash-out refinance means your new loan amount is equal to or less than your existing loan; this might be the case if you are refinancing a non-VA mortgage to a VA mortgage and do not want cash back at closing.
Upfront closing costs for refinancing are typically 2 to 5 percent of the loan amount. VA loans are unique because the lender’s origination fee can’t be more than 1 percent of the loan amount. Most homeowners use some of their cash-back to pay closing costs so they don’t have to pay out of pocket.
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VA cash-out refinancing usually takes about as long as a standard mortgage: 40 to 55 days on average. That’s because a VA cash-out refinance requires full underwriting — meaning the lender has to take all the same steps it would for a home purchase loan, including a home appraisal, credit report, and full documentation. By comparison, an IRRRL requires fewer documents and can often close in less than a month.
For first-time use, the VA funding fee is equal to 2.3 percent of the loan amount. That includes non-VA loan holders using the cash-out refinance to switch into a VA loan. If you’ve used your VA home loan benefit before, the funding fee will be 3.6 percent.
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