Over 3.7 million veterans currently have active VA loans. If you’re one of these veterans, you could tap into a valuable resource – your home equity. A VA cash-out refinance allows access up to 100% of this value. For conventional loans, it is only up to 80-85%.
You can use this cash to fund home improvements, consolidate debt, or for other expenses you might incur. Apply for a refinance right away!
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Cash-out Refinance
What Is VA Cash-Out Refinance?
A VA cash-out refinance is a mortgage option for eligible veterans and active-duty service members with an existing VA loan. It allows you to refinance your VA loan for a higher amount. You will then receive the difference as cash at the closing date.
This program helps homeowners tap into their home equity for home improvements or debt consolidation. Moreover, it offers lower interest rates, lets you include the funding fee in the loan, and skips private mortgage insurance.
How Does It Work?
Imagine you purchased your home with a VA loan and have been building equity through your mortgage payments. A VA cash-out refinance allows you to tap into that equity. Here’s the process:
- Take a New Loan: You get a new VA loan that exceeds your current mortgage balance. So, if you owe $200,000, you can get a new loan for $250,000.
- Pay-off the Old Loan: This new loan immediately pays off your existing VA mortgage and clears the $200,000 you owe.
- Get the Difference in Cash: You receive the difference between the new loan and the old loan as cash. For example, you’d get $50,000 ($250,000 – $200,000) to use as you see fit.
Who Is Eligible for a VA Cash-Out Refinance?
You are eligible for a VA cash-out refinance if you are:
- A Veteran: If you have served in the U.S. military and have been discharged under honorable conditions.
- An Active-Duty Military: If you are currently serving full-time in the U.S. armed forces, including the Army, Navy, Air Force, Marine Corps, or Coast Guard.
- A National Guard and Reserve Member: If you have completed at least six years of service in the National Guard or Reserve.
- An Eligible Surviving Spouse: If you are a widow of a veteran who hasn’t remarried.
You also need to meet the lender’s credit score and income requirements. This includes having a minimum score of 620 and providing proof of stable income.
How Do You Apply for a VA Cash-Out Refinance?
To apply for a VA cash-out refinance, follow these steps:
- Determine Eligibility: You will need a VA Certificate of Eligibility to qualify for a VA cash-out refinance. This document verifies your military service and entitlement to VA loan benefits.
- Choose a Lender: Find VA-approved lenders. Compare their offers, interest rates, and fees. Select a lender that suits your needs.
- Complete the Loan Application: Fill out the loan application provided by your chosen lender. Provide accurate information about your personal, financial, and military history.
- Submit Documentation: Submit the proof of income, bank statements, tax returns, and any additional documents required by the lender.
- Underwriting: The lender will review your application and documents during the underwriting process. They will assess your eligibility and determine the maximum loan amount you qualify for.
- Appraisal: The lender will arrange for a home appraisal to assess the current value of your home. This appraisal determines the loan-to-value ratio and maximum cash-out amount.
- Loan Approval: If your application is approved, you’ll receive loan approval documents to review and sign. A closing date will be scheduled. The loan will be funded, and you’ll receive the cash-out portion of the loan.
Pros and Cons of VA Cash-Out Refinance
Here are the pros and cons of VA cash-out refinance:
✅Pros:
- Lower Interest Rates: VA cash-out refinances offer better interest rates compared to conventional loans.
- Access to Home Equity: You can tap into 100% of your home’s value and get the funds for various needs.
- Opportunity to Consolidate Debt: You can use the cash to pay off high-interest debts and improve your overall financial situation.
❌Cons:
- Extended Loan Terms: Refinancing a VA loan may reset your loan term, potentially increasing the total interest paid over time.
- Requires Funding Fee: VA loans include a funding fee which can add to the overall cost of the refinance.
- Involves Closing Costs: Expect to pay between 3% to 5% of the loan amount in closing costs, which can amount to thousands of dollars.
Is VA Cash-Out Refinance a Good Option for You?
A VA cash-out refinance can be a smart choice if you can get a good interest rate on the new loan. Additionally, you can consolidate high-interest debt which can reduce your overall monthly payments.
Whether VA cash-out refinance is a good idea also depends on your plans for the money. Using the funds for vacations or a new car offers little to no financial return. However, investing in home renovations can rebuild the equity in your home.
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Frequently Asked Questions
How much is the funding fee for VA cash-out refinance?
The funding fee for VA cash-out refinance ranges from 2.15% to 3.3% of your loan amount, depending on whether it's your first time using a VA loan.
How long does the VA cash-out refinance process take?
On average, the process may take around 30 to 45 days from the application submission to loan closing. The timeline depends on factors such as the lender's efficiency, documentation requirements, and appraisal process.
Can I get a VA cash-out refinance if I have a conventional loan?
No, a VA cash-out refinance is specifically available for borrowers with an existing VA loan. If you currently have a conventional loan, you would need to first refinance it into a VA loan before being eligible for the cash-out option.
