VA Cash-Out Refinance

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, 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.

Unlock the equity in your home. Learn more about VA cash-out refinancing options.

VA Cash-Out Refinance Requirements

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 often a 620 minimum.

Additional requirements can include:

• Meeting the VA's service requirements for VA loan eligibility
• Certifying that you intend to occupy the property as your primary residence
• Meeting the lender's loan-to-value (LTV) requirements
• Meeting requirements related to how long it takes you to recoup the cost of the refinance
• Receiving what the VA considers a net tangible benefit from the refinance

Lenders may also have seasoning requirements for Cash-Out refinancing, which refers to the length of time the mortgage existed.

At Veterans United, we need homeowners to have made 7 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.

Refinancing may result in higher finance charges over the life of the loan.

VA Cash-Out Loan-to-Value (LTV) Requirements

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:

• 90% of $400,000 = $360,000
• $360,000 - 200,000 = $160,000
• $160,000 = equity you can take as cash

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.

Talk to a Veterans United loan specialist for more details.

VA Cash-Out Time to Recoup Requirements

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:

• Refinancing an adjustable mortgage product into a fixed-rate mortgage
• Reducing the loan term
• Providing a specific cash-out benefit for paying off debts

That's not an exhaustive list. There may be additional net tangible benefits to support a longer recoupment period.

VA Cash-Out Pros and Cons

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.

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% 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% of the loan amount for first-time users of the VA loan and 3.3% for Veterans who've used the benefit before.

Estimate your total costs and savings with Veterans United's VA refinance calculator.

Understanding Refinance Offers

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.

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.