Mortgage Daily

Published On: December 23, 2022

Program for VA Cash-Out Refinancing

The VA cash-out refinancing offers extraordinary advantages. It can enable you to access your whole home’s equity. Veterans can use the VA cash-out refinance even if their current mortgage is not a VA loan.

This program may convert any form of home loan into a VA mortgage with low rates, no mortgage insurance, and cash back at closing.

What is a VA cash-out refinance loan?

A VA cash-out refinancing involves the replacement of your current mortgage with a new VA home loan. Typically, the new loan has a higher balance than your current one. The difference, or excess loan amount, is refunded to you in cash at closing.

With this loan, you are not obligated to pay your home equity. A VA cash-out refinancing can also replace a non-VA loan with a VA loan and reduce your mortgage interest rate.

VA mortgage refinancing is only available to veterans and active-duty service members.

VA Cash-Out Refinancing Advantages

A VA cash-out refinancing allows you to do the following:

  • Receive up to one hundred percent of your equity back in cash at closing (but note, some lenders will only go to 90 percent)
  • Refinance a non-VA loan (such as an FHA or conventional loan) into a VA loan.
  • If you have an FHA loan, a USDA loan, or a conventional loan with PMI, you must cancel it.

The VA cash-out loan permits a loan-to-value ratio of up to 100 percent (LTV). This implies you might receive a loan equal to the value of your property. Most alternative cash-out refinancing options restrict loan amounts to 80% LTV.

The cash returned can be utilized for any reason, including paying off other debt, renovating, or investing in real estate.

For example, suppose a homeowner qualifies and owns a home for $400,000. The outstanding debt on their loan is $200,000. They might take up a new VA cash-out loan for up to $400,000 and get $200,000 in cash at closing, less closing expenses.

The VA cash-out refinancing is an outstanding instrument that enables veterans to access vast sums of cash swiftly.

Rates for VA Cash-Out Refinancing

Veterans and active-duty service members can refinance into a new loan with a reduced interest rate and earn cash back through the VA cash-out refinance program.

As a result of the Department of Veterans Affairs support, VA interest rates are often the lowest on the market.

Currently, VA refinancing rates begin at a low 5.75 percent (5.96 percent APR), according to our lender network*. Compared to a standard 30-year loan rate of 5.875% (5.899% APR), VA financing is an excellent value.

VA Cash-Out Refinance Rates in Comparison to “Standard” VA Rates

Cash-out mortgage rates are higher than conventional mortgage rates.

Therefore, cash-out refinancing rates may be 0.125% to 0.250% higher than quoted VA loan rates online.

Nonetheless, this rule is not absolute. Your individual refinance rate is determined by criteria such as your credit score and home equity; therefore, if your finances are in good shape, you may qualify for a cash-out refinance with a favorable interest rate.

Also, you are not required to refinance with your present mortgage provider. Utilize this to your benefit.

You may compare cash-out refinancing rates from various VA-approved lenders to see which offers the lowest rates.

2023 VA Cash-Out Refinance Guidelines

To be eligible for a VA cash-out refinancing, you must fulfill the minimum requirements established by the Department of Veterans Affairs and your lender. Expect to require:

  • A minimum credit score between 580 and 620 (varies by lender)
  • Stable employment and income
  • In most circumstances, a debt-to-income ratio (DTI) of less than 41%.
  • Enough home equity if you intend to withdraw cash. Certain lenders demand you retain at least 10% of your home’s equity.

You must also have an acceptable military service record to qualify for a VA loan.

This will be demonstrated by acquiring a Certificate of Eligibility (COE). Eligibility is contingent upon the quantity of time spent and the duration of service.

You may qualify for a VA loan if you have served:

  • 90 days of battle have gone passed, and now separated
  • 90 days remaining on active duty
  • Having spent 181 days in peace, we are now divided
  • Two years if enrolled after the Vietnam War.
  • Six years of service in the National Guard or Reserves
  • If you are a surviving spouse

Additionally, eligibility can be determined for other military personnel with an honorable discharge.

Direct online queries to the Department of Veterans Affairs allow VA-approved lenders to verify eligibility, typically within minutes.

It is worthwhile to determine your eligibility for a VA loan if you have any U.S. military experience. Remember that you can use the VA cash-out refinancing to obtain a new loan even if your present mortgage is not VA-backed.

The Procedure for VA Cash-Out Refinancing

The VA cash-out refinance process will be comparable to the mortgage process you went through when you initially purchased your house.

When seeking a VA cash-out loan, homeowners will:

  1. Choose a VA lender — Compare at least three to five lenders to find the best rate.
  2. Obtain your Certificate of Eligibility (COE) — Your loan officer can pull this for you in minutes.
  3. You must send supporting papers, bank statements, wage stubs, and W2s, along with your loan application.
  4. Obtain a new home evaluation – The lender will arrange an evaluation on your behalf. The revised valuation decides how much stock is available for withdrawal.
  5. Undergo underwriting — This is primarily a waiting game while the lender validates your financial information. Be careful to react to any document requests swiftly.
  6. On the closing day, you will sign the final loan paperwork and pay the closing expenses.

Remember that a VA cash-out refinance needs comprehensive underwriting.

Therefore, it will take more effort and documentation than the VA Interest Rate Reduction Refinance Loan (IRRRL), which needs more documentation.

If you use the VA cash-out refinancing, you must be able to demonstrate the following:

  • Documents of income (pay stubs and W2s)
  • Bank statements
  • Possibly, tax filings
  • A credit file and credit rating
  • A fresh home evaluation
  • Your current mortgage amount

If you want to utilize your cash-out money for debt consolidation, you may be required to provide a detailed list of the debts to be repaid using the loan proceeds.

Limits on VA Cash-Out Refinancing Loans

As of January 1, 2020, VA loan limitations no longer exist. Borrowers who qualify can finance the full value of their house with no down payment. This is true for both VA purchase loans and refinancing loans.

Therefore, what does “no limit” signify with regard to your cash-out refinance?

It implies you refinance your house for its full market value and withdraw all of your equity as cash.

Imagine you had a VA loan on a $700,000 property. You still owe $500,000 on the house in 2023.

Under the new regulation, you might utilize a VA cash-out refinancing to obtain a new mortgage for $700,000 on the property, allowing you to receive the whole $200,000 in cash minus closing expenses.

This was only conceivable in 2020 when VA loan restrictions were roughly equivalent to conforming loan limits.

This does not guarantee you a loan equal to the full worth of your house. You must still qualify by satisfying your lender’s minimal credit score and DTI requirements.

Lenders Offering VA Cash-Out

Choosing a lender for your VA cash-out refinancing is essential because only a select few lenders permit you to utilize your VA cash-out benefits fully.

For example, the Department of Veterans Affairs permits up to 100 percent financing. Consequently, you can theoretically remove your home equity with a VA cash-out loan.

But not all lenders strictly adhere to VA regulations. Many only permit up to 90 percent financing or even less.

This is especially essential for homeowners who have made a small down payment or have owned their houses for a short period. To qualify for a VA cash-out loan if you have low home equity, to begin with, you need a lender that is flexible regarding your loan-to-value ratio.

Your interest rates are also affected by your mortgage lender.

Remember that VA cash-out refinance rates are higher than VA refinance rates with no cash-out. Therefore, you must be especially thorough while searching for a lender that would provide a fair offer.

See our assessment of The Best VA Lenders for a fantastic starting point. Alternatively, you can be matched with a lender using the link below.

Best Uses for a Cash-Out Refinance

The sole incentive to open a VA “cash-out” loan is not cash-back. The name of this loan is quite deceptive.

The VA cash-out can be used to pay off and refinance any loan, even if the applicant has no intention of receiving cash at closure.

The veteran can:

  • Repay a non-VA debt.
  • Receive money upon closing, or
  • Do both

The VA IRRRL, in contrast, is a program limited to loans between veterans. You cannot use the IRRRL program if you have an FHA loan or another form of loan.

Utilize a VA Cash-Out Refinance to Cancel Your Mortgage Insurance

VA loans do not require continuous mortgage insurance payments, one of the greatest advantages of converting a non-VA loan to a VA loan.

This implies that veterans can minimize their homeownership costs by paying off an FHA loan and eliminating their FHA MIP.

Similarly, VA-eligible homeowners can refinance out of a conventional loan with PMI (PMI).

Here is an illustration.

In 2016, a veteran acquired a home using an FHA loan. The remaining loan balance is $250,000. The monthly cost of FHA mortgage insurance is $175.

Even if the veteran does not choose to take further cash out, they can use a VA cash-out loan to convert their FHA mortgage into a VA mortgage. The veteran now gets a loan without mortgage insurance and a cheaper interest rate.

Refinance Out of a More Expensive Loan Program

VA financing may be utilized to repay any loan with adverse conditions:

  • A high-interest Alternative A loan.
  • Default-only loans
  • Adjustable-rate mortgages
  • “Piggyback” first and second mortgage loans
  • Standalone second mortgages
  • Every mortgage loan requiring mortgage insurance
  • Construction liens
  • Judgment or tax liens
  • Bridge loans

In brief, converting any form of mortgage loan into a VA loan with more advantageous conditions is possible.

You may utilize a refinancing calculator to understand your possible savings better.

Refinance a Mortgage With a High LTV to a Cheaper Rate

Even though the housing slump occurred more than a decade ago, some veteran homeowners continue to experience its impacts.

The good news (at least for veterans) is that the VA cash-out refinancing can be authorized for up to the house’s whole value. Even if the homeowner is virtually underwater, the VA program can refinance the loan at a cheaper rate.

Consider a veteran who obtained a non-VA loan for $200,000 at a 6.5% interest rate.

They could not refinance into a conventional loan since the value of their homes had declined.

As qualified veterans, they might take up a VA cash-out loan for the full value of their property, paying off the high-interest loan and lowering their monthly payment.

Use a VA Cash-Out Refinance to Consolidate Mortgages and Other Obligations

Borrowers can extract cash from their properties while consolidating their first and second mortgages into a single, low-interest VA loan. This is true regardless of whether the present mortgages are VA loans.

Suppose, for instance, a veteran acquired a home with an FHA loan and afterward obtained a second mortgage from a local bank.

The homeowner with VA eligibility may pay down both loans, reduce mortgage insurance, and combine the two loans.

If money is left over, the homeowner can pay medical costs, address a family emergency, establish a company, pay off high-interest short-term loans and credit cards, or for virtually any other purpose.

FAQ About VA Cash-Out Refinancing

The most frequently asked questions concerning the VA cash-out refinancing program are provided here.

Does VA Allow Cash-Out Refinancing?

Yes. As long as you are eligible for a VA mortgage and have sufficient home equity, the VA permits cash-out refinancing to access the cash worth of your house. The VA cash-out loan can also be used to refinance a non-VA mortgage into a VA loan with or without cashback.

How Do Cash-Out Refinances Work?

A VA cash-out refinancing entails the substitution of your current VA mortgage with a new VA loan. If you wish to get cash at closing, you can take out a bigger new loan than your old one and receive the difference in cash. However, the VA cash-out refinancing does not mandate that you receive cash back.

Is VA Cash-Out Refinancing a Wise Decision?

A VA cash-out refinancing is advantageous for two sorts of individuals. Either you wish to refinance your current VA mortgage and get cash at closing or refinance a non-VA mortgage into a VA loan. The VA Streamline Refinance is typically the superior option for current VA loan holders who do not require cash at closing.

What Is the Maximum LTV for a VA Cash-Out Refi?

The maximum LTV for a VA cash-out loan is 100 percent, plus the VA financing charge. For instance, if the appraised value of a veteran’s property is $100,000 and they pay a 2.3% financing charge, the maximum loan amount is $102,300. Veterans and military members can add the cost of energy-efficient renovations to the total, even if doing so boosts the loan amount over the home’s full market value.

What Is a Type 2 Refi?

A Type 2 VA cash-out refinance indicates that your new loan amount is more than the refinanced loan; this is a loan in which you receive cash back. A Type 1 VA cash-out refinance signifies that your new loan amount is equal to or less than your old loan; this might be the situation if you are refinancing a non-VA mortgage into a VA mortgage and do not wish to receive cash at closing.

How Much Are VA Cash-Out Refinance Closing Fees?

Refinancing closing expenses are between 2 and 5 percent of the loan amount. VA loans are distinctive because the origination charge cannot exceed 1 percent of the loan amount. Most homeowners utilize a portion of their cash-back to cover closing fees, avoiding out-of-pocket expenses.

How Long Does It Take for a VA Cash-Out Refinance?

The average duration of a VA cash-out refinance is comparable to that of a conventional mortgage: 40 to 55 days. Because a VA cash-out refinance needs comprehensive underwriting, the lender must take all the same procedures it would for a home purchase loan, such as a house appraisal, credit report, and complete documentation. In contrast, an IRRRL often requires fewer documentation and can close in less than a month.

What Is the VA Funding Fee for Cash-Out Refis?

The VA financing fee for a first-time borrower is 2.3% of the loan amount. This covers non-VA loan holders who utilize cash-out refinancing to convert to a VA loan. If you have previously used your VA home loan benefit, the financing charge will be 3.6%.

Why Utilize a VA Cash-Out When a Streamline Refinance Is Easier?

An appraisal is often not required for a VA Streamline Refinance, nor are bank records, pay stubs, W2s, or tax filings. However, it is only possible if you already have a VA loan and do not require cash at closing. VA cash-out is the only VA refinance program that allows you to cash out the equity in your home and refinance out of any form of loan.

Is a Fresh Appraisal Required for a VA Cash-Out Refinance?

Yes. These loans are offered up to the current appraised value of the residence. A fresh appraisal is necessary to determine the current worth of the home.

Can I Receive a VA Cash-Out Loan for a Rental Property?

No. The property to secure a VA loan must be the borrower’s principal residence.

I Have an FHA-Insured Loan. Is a VA Cash-Out Loan Available?

Yes. A VA cash-out loan can be used to pay off and refinance any form of loan, including FHA, USDA, or conventional loans with a fixed or variable interest rate. This program allows you to refinance a loan with a high-interest rate or mortgage insurance.

My Mortgage Is Conventional, Alt-A, Interest-Only, Subprime, or Privately Held. Can I Obtain a VA Cash-Out?

Yes. A VA cash-out refinancing can pay off any debt if you are eligible for a VA loan and fulfill the cash-out mortgage conditions.

How Can I Use the Money Received?

There are no constraints on how the funds may be used. According to the VA lending guidebook, cash can be used for “any purpose acceptable to the lender.” However, some uses for a cash-out refinance are more prudent than others. For example, using cash-out funds for debt consolidation can be wise and save you a significant amount of money over time.

Why Am I Unable to Get a Cash-Out Refi in Texas?

Texas sets stringent regulations on home equity loans, limiting cash-out borrowing to an LTV of 80 percent. The VA’s 100 percent financing standard for cash-out loans is superseded by Texas law. If you were denied, it might have been because your home’s equity was less than 20 percent.

Are VA Cash-Out Refinance Interest Rates Lower Than Other Programs?

VA mortgage rates are generally cheaper than conventional or FHA refinancing rates. However, note that rates are constantly dependent on the borrower. If an applicant for a VA loan has large debts and poor credit, their interest rate will undoubtedly exceed the current average VA rate.

Can a Cash-Out Refinance With the VA Reduce My Monthly Mortgage Payments?

Yes, however, the quantity of your mortgage payments is also affected by several other variables. For instance, refinancing into a loan with a shorter term might boost your monthly mortgage payment. However, you would pay less interest over the lifetime of the loan. Consider the IRRRL Streamline loan if you are refinancing a current VA loan to minimize your monthly mortgage payment.

Can Discount Points Be Utilized on a VA Loan?

Yes, the VA permits homeowners and refinancers to purchase discount points to reduce interest rates. However, purchasing points only makes sense if you remain in the mortgage for an extended period. If you sell or refinance the property too quickly, you will not recover the initial cost of the points.

Why Are VA Loans So Beneficial?

The Department of Veterans Affairs guarantees a portion of the loan’s value, allowing lenders to offer low-interest loans through the VA lending program. The lender would get compensation if you were unable to repay the debt. To safeguard lenders against financial loss, conventional loans must impose hefty private mortgage insurance (PMI) premiums.

Do I Qualify for a VA Cash-Out Refinancing?

You may qualify for the VA cash-out program if you have a qualifying service record and decent credit. Determine your eligibility with a mortgage lender and see how much cash you may withdraw.


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