VA loan | VA cash-out refinance

The VA cash-out refinance loan gives veterans access to 100% of their home equity. 

With this mortgage program, you can replace your current conventional or VA loan with a new VA loan and turn your home's remaining equity into cash. Then, you can use the cash for any purpose, such as debt consolidation or home improvements.

The amount of cash you can take out depends on several factors, including the value of your home, your outstanding mortgage balance, the closing costs, and the lender's policies.

In this article, I'll outline the program requirements and show you how it works so you can decide if the VA cash-out refinance loan is right for you. 

What is a VA cash-out refinance?

A VA cash-out refinance loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) for military veterans, active duty service members, and their spouses. 

It allows you to refinance your existing VA or non-VA mortgage and tap into the equity you've built up in your home. You can typically take out a loan of up to 100% of the value of your home minus any outstanding mortgage balance and closing costs. 

However, the rules vary depending on the lender, so it's a good idea to check with a few lenders to find the best deal. You can find more information about the VA-backed cash-out refinance loan on the VA's website.

How does the VA cash-out refinance work?

The following example shows how a 100% VA cash-out refinance might work: your home's worth $300,000, your current VA loan balance is $225,000, and you have $75,000 in home equity.

Let's say you want to use your home's equity to pay off high-interest credit card debts. You're eligible for a VA loan, your credit score is 680, and you qualify for the VA cash-out refinance.

Your refinance scenario would look like this: 

First, subtract the current VA loan balance and closing costs, including the VA funding fee, from the new VA loan amount. After that, you get $61,800 in cash at closing to pay off your credit cards.

Again, this is just an example. Your VA cash-out refinance loan's specific terms depend on your lender and your unique situation. Use our calculator to see current interest rates, annual percentage rates (APR), and estimated closing costs.

We made it super easy for you to estimate your closing costs with our VA Loan Calculator. 

• View closing costs, including the funding fee. Get accurate information, so you know what to expect when refinancing your house. 

Do VA cash-out loans require an appraisal?

A VA cash-out refinance loan requires an appraisal to determine your home's current value and equity and that you aren't borrowing more than your home is worth. 

The lender orders the appraisal as part of the loan process. The appraiser visits your home, inspects it, and prepares a report the lender uses to calculate your loan amount. 

The value of your home, as determined by the appraisal, may differ from the price you paid or what you think it's worth. Nevertheless, the appraised value affects the amount of cash you can take out when you refinance, so it's a good idea to have a realistic understanding of your home's value before applying for a VA cash-out refinance.

Are there closing costs on a VA cash-out refinance?

The VA cash-out refinance loan has closing costs, just as with any other type of mortgage refinance. Closing costs are fees to cover the costs associated with refinancing your home. They can vary depending on your lender and the specific terms of your loan, so it's a good idea to shop around and compare offers from multiple lenders to find the best deal. 

A typical VA cash-out refinance loan may include the following types of fees. However, you can finance them into your new loan, so you don't have to pay them out of pocket - as long your new loan isn't more than you're home's value.

Most veterans pay a one-time VA funding fee when refinancing a home using a VA loan. To calculate the VA funding fee, multiply the rate by the loan amount. Here are the current rates for a VA-backed cash-out refinance loan.

• 2.3% of the loan amount for first-time users 
• 3.6% of the loan amount after the first use
• 0% for exempt veterans and surviving spouses
  

Check out our Loan Estimate Explainer, a mortgage closing cost comparison tool to help you understand the numbers and terms featured on the Loan Estimate.

What are the requirements for a VA cash-out refinance?

In addition to the following requirements, you'll also need to meet any specific provisions set by the lender, such as having a minimum credit score, loan-to-value, debt-to-income ratio, or particular property type.

Credit score

The credit score you need to qualify for a VA cash-out refinance loan depends on the lender. For example, you need a 620 or higher score to refinance with NewCastle Home Loans and a 680 or higher score to borrow more than 90% of your home's appraised value.

Debt-to-income ratio 

Lenders consider your debt-to-income ratio (DTI) when deciding how much you can afford to pay for the VA loan. DTI is a measure that compares the amount of debt you have to the amount of income you receive. A higher DTI ratio may indicate that you have too much debt and can't afford the payments on a new mortgage.

Your monthly debt shouldn't be more than 55% of your gross income for a VA loan. Taking out a bigger mortgage by cashing out may increase your monthly payment and make it harder for you to get approved. 

Current mortgage 

Your home must have an outstanding mortgage balance to qualify for a VA refinance. Although the mortgage your paying off can be a VA or non-VA loan, the property cannot be free and clear to refinance with a VA-backed loan.

VA refinance waiting period

The VA has a waiting period after buying or refinancing a home. You must keep your current mortgage for at least seven months after the first payment due date.

How hard is it to get a VA cash-out to refinance?

To begin the process, shop for a lender that allows you to take full advantage of your VA cash-out benefits. Unfortunately, only some lenders will give you access to 100% of your home's equity. 

Next, check your Certificate of Eligibility to ensure you can get a VA loan. 

Then, apply with a VA-approved lender like NewCastle Home Loans. After receiving your application, we verify your financial information, such as your credit, debts, and income, and order an appraisal to determine the current value of your home. 

After that, our team of certified underwriters approves your loan, and finally, you're ready to close.

How long does it take to close on a VA Cash-Out refinance?

Most lenders take 45 to 60 days to complete your VA cash-out refinances. In comparison, our turn time is 14 to 21 days, which is three times as fast on average. 

Visit our VA loan page for more information. Feel free to comment below