VA cash-out refinancing allows qualified Veterans to refinance their VA or non-VA loan and tap into their home equity. Homeowners can use that cash to make home improvements, pay down debt and more.
The VA cash-out refinance can also help qualified Veterans refinance into a lower rate, or switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM), or eliminate costly mortgage insurance they might be paying with another type of loan.
VA cash-out refinancing shouldn't be confused with a home equity loan or home equity line of credit (HELOC). With a VA cash-out, you're getting a brand new loan, a new mortgage rate and a new monthly payment.
VA cash-out rates change daily based on market conditions. The following cash-out rates are current as of Sep 30th, 05:08 PM CST.
|VA Loan Type||Interest Rate||APR|
|30-year VA Cash-Out||7.250%||7.602%|
|30-Year VA Cash-Out Jumbo||7.500%||7.946%|
Lenders will document credit, income, employment and assets for homeowners seeking a cash-out refinance. Guidelines and requirements for minimum credit score, maximum debt-to-income ratio, derogatory credit and more can vary by lender.
The credit benchmark for a VA cash-out refinance is typically a 620 minimum.
Additional requirements can include:
Lenders may also have seasoning requirements for cash-out refinancing. A seasoning period refers to the length of time the mortgage existed.
At Veterans United, we need homeowners to have made seven consecutive monthly payments on their current loan, and the note date on the cash-out refinance must be at least 240 days after the original loan's first monthly payment due date.
Homeowners in Texas may encounter restrictions regarding VA cash-out refinance loans.
The VA allows qualified Veterans to refinance with a loan-to-value ratio up to 100%. But lenders will often cap LTV at 90% in most cases. That limit also includes the VA Funding Fee if applicable.
For example, let's say you have a loan balance of $200,000 and your home appraises for $400,000.
The LTV math looks like this:
Homeowners can pay their closing costs and the VA Funding Fee from the proceeds of their refinance, as long as you're still meeting LTV guidelines.
Lenders may have guidelines regarding how long it takes a borrower to recoup the costs and fees of getting a cash-out refinance.
With a rate and term cash-out (when a borrower uses a VA cash-out refinance to go from a non-VA loan to a VA loan without taking cash out), the time to recoup typically can't exceed 84 months.
For example, if the cash-out costs and fees total $6,000 and the new loan saves the homeowner $100 monthly, this borrower would recoup those costs in 60 months (6,000 / 100).
For a true cash-out refinance, the time to recoup can exceed 84 months, but the loan file will need to document positive reasons to support the longer time frame, such as:
That's not an exhaustive list. There may be additional net tangible benefits to support a longer recoupment period.
Those looking to tap into their home's equity should have a complete picture of this loan type.
VA cash-out pros are fairly straightforward because, generally, there are no restrictions on using your cash back.
Generally, there are no restrictions on using your cash back. Common uses include, but are not limited to:
VA cash-out cons are slightly more complex.
First, unlike a VA streamline refinance, homeowners can't simply roll their closing costs on top of their loan. You'll have to cover closing costs at the closing table, likely using a portion of the equity you're cashing out. These costs and fees vary based on various factors but typically range from 3 to 5 percent of the loan amount.
Another consideration is that many homeowners must contend with the VA Funding Fee. The VA Funding Fee goes directly to the Department of Veterans Affairs to help keep the loan program running. The VA funding fee is typically 2.15 percent of the loan amount for first-time users of the VA loan and 3.3 percent for Veterans who've used the benefit before.
Estimate your total costs and savings with Veterans United's VA refinance calculator.
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 promise big benefits but hide many costs and fees in the fine print. Others won't clearly explain they're offering a riskier adjustable-rate loan.
If you receive 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.
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.
Veterans need to have an active VA loan on the property in order to secure a Cash-Out refinance. You wouldn't be able to get one if you own the home free and clear.
Seasoning periods can vary by lender, but you'll typically need to wait at least six months from when your current mortgage payments started.
Daily market conditions affect VA cash-out rates. 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 lenders can charge. 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 2.15 percent. For those reusing their benefit, the VA Funding Fee on a cash-out refinance is 3.3 percent.
VA cash-out refinances typically take 45 to 60 days to close. But every homeowner's situation is different, and some cash-outs might close faster. Talk with a VA loan expert to get an accurate estimate of closing time.
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 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.
Unlike a VA streamline refinance, VA cash-out refinancing has the same occupancy requirements as VA purchase loans. This means Veterans seeking a cash-out refinance must intend to occupy the home as their primary residence.
With an IRRRL, the new loan does not require the use of new or additional VA loan entitlement. However, cash-out borrowers must use new or additional VA loan entitlement to secure the loan.
A cash-out is a new mortgage loan that repays the original VA loan in full, which allows borrowers to restore the entitlement utilized on that purchase. However, there could be additional entitlement required depending on the specific circumstances.
If you have questions about how you can use your VA eligibility on a cash-out refinance, contact a Veterans United loan specialist today.