VA Cash-Out Refinance: Using Your VA Home Loan Benefits

How does a VA cash out refinance work?

Cash out refinance graphicThe VA cash-out refinancing option enables Veterans to borrow up to 100% of the appraised value of their home to pay off their current mortgage. In addition to paying off the existing mortgage, any additional money can be used to pay off or reduce credit card balances, school loans, and revolving and installment loans. The VA cash out may include closing and prepaid costs. See the example below:
Current Home Value 250,000
X 100% of home value ($250.00 X 100%) = 250,000

Less payoff, the current loan

150,000

Less closing costs and prepaid costs (estimated)

4,000
Maximum VA cash back at settlement 96,000

Borrowers may refinance their current mortgage into a new loan with closing and prepayment expenses using the Funds-Out Refinance Loan, doing away with the requirement to raise cash. With the VA guaranteeing up to 100% of the home's value, this loan may also convert a non-VA loan into a VA loan.

Who is eligible for VA Cash Out Streamline Loan?

  • Active duty Service members
  • Certain surviving spouses
  • Current Guard and Reserve members (with six years of creditable service)
  • National Guard and Reserve members (called to active duty)
  • Veterans

The Veteran/Service member must have been dismissed from military duty other than dishonorably and must have completed the length of service required by the government.

Occupancy Requirement: Along with the service and discharge requirements, the Veteran, the Veteran's spouse, or dependent child must attest to the property's occupancy.

How Can I Apply for a VA Loan?

The first step is to apply to a VA-approved lender. As previously stated, the VA does not issue house loans to veterans; instead, it establishes lending guidelines and reimburses lenders for 25% of the loan amount in the event of a Veteran default.

What Is the Minimum Credit Score for a VA Cash Out Refinance

Unbelievably, the VA has no minimum credit score requirement, and the VA gives the lender discretion over the necessary credit score minimums. For instance, although some lenders need a minimum credit score of 620 for refinancing, others would accept applicants with a credit score as low as 580.

Check with the lender to see whether you qualify for a VA cash-out refinance before applying.

What Is the Funding Fee for a VA Cash Out Refinance?

The VA funding fee is equivalent to 2.3 percent of the loan amount when used for the first time.

This includes veterans refinancing from an FHA, USDA, or conventional mortgage into a VA cash-out refinance loan.

The funding fee is 3.6 percent of the loan amount for Veterans who have already utilized their VA home loan benefit.

Animated question markFAQs About VA Cash Out Mortgage Refinance

Q. Can I do a cash-out refinance on a VA loan?

A. As mentioned earlier, the Veteran's Administration allows for a cash-out loan. The VA cash-out mortgage may be up to 100%. (varies by lender). The funding fee may be added to the principal amount of the loan. Additionally, closing and prepayment fees might be rolled into the cash-out refinancing.

Q. Can I do a cash-out VA refinance?

A. The standards for a VA cash out a mortgage are the same as those for a purchase mortgage. Employment stability, credit rating, and the number of monthly debt payments are all crucial factors to consider. Overall, the loan conditions are comparable to those of the Veterans Administration (VA).

Q. Can you do a 100 VA cash out refinance?
A. The Veteran's Administration allows for 100 percent financing; however, since the lender is liable for the mortgage, some lenders may limit the amount borrowed to 90 percent of the total appraised value. Call several VA lenders until you locate one that will provide 100 percent financing on a VA cash-out loan for your situation.

Q. Can you do a VA cash out refinance on an investment property?
A. Refinancing of investment properties is not permitted under the VA loan programs.

Q. Do I need an appraisal for a cash-out refinance?
A. Yes. Ordered through the lender.

Q. Do you require good credit for a cash-out refinance?
A. The credit score should be in the 620 to 640 range.

Q. Do you pay closing cost on cash out refinance loans?
A. Yes

Q. How does a VA cash out refinance work?
A. A VA cash-out refinancing loan is similar to your initial purchase mortgage. The lender will require a credit score of at least 620 to approve the mortgage (some VA lenders may go lower). It is necessary to get the house appraised since the home is the collateral for the loan. A title search and title insurance will also be required.

Q. What is a 30-year VA cash-out refinance loan?
A. Depending on the amount of equity you have built up, you may be eligible to borrow against the equity in your house by replacing your existing mortgage with a new mortgage with a lower interest rate through the VA cash-out refinancing program.

Q. What is a type 2 VA cash out refinance?
A. The disparity between the loan amounts creates a cash-back component in a Type 2 VA cash-out loan when you borrow more than the balance of your current loan. For example, if the appraised value is $100,000 and your current loan balance is $50,000, you can create a cash-back component by borrowing $50,000, bringing the new loan amount to $100,000.

Q. What is a VA cash out refinance home equity disclosure?
A. The lender must disclose the amount of home equity withdrawn from the property twice: within three business days of submitting the loan application and again at loan closing. At loan closing, the home equity disclosure should explain how the reduction of home equity may affect the sale or refinancing of the house in the future, using the final payout and fair value (as shown in the Notice of Value) to establish the last disclosure.

Q. What is the maximum loan to value (LTV) for a VA cash out refinance?
A. 100% LTV financing is permitted by the Veterans Administration, although the lender may cut the maximum loan amount.

Read more about VA loans on the questions and answer page

Conclusion

If you're considering refinancing your mortgage, consult a qualified VA lender to learn more about your options and understand the process and risks involved to make the best decision for your financial situation. VA cash-out refinancing can be a great way to get extra money for your needs.

SOURCE: Cash-out Refinance Loan

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