VA Cash-out Basics
A VA cash-out refinance loan is a new home loan, just like any refinance. The difference is that it allows you to take cash out from your home’s equity, or the difference between the value of your home and the current balance on your mortgage. Funds from the refinance can then be used for debt consolidation, home improvements, college tuition, or anything else you might dream of. While it might sound odd, homeowners aren’t required to take out cash with these refinance loans. That means qualified veterans with non-VA loans can use this benefit just to take advantage of lower rates, or to get out of an adjustable-rate loan, or to eliminate costly mortgage insurance with other loan types.
Why get a VA cash-out?
You may be eligible if have a current mortgage on your home and you have equity built up in your home. It can take a number of years to build equity, though it may depend on how the housing market is in your area. In the recent past housing prices have risen significantly across the nation so you may be building equity faster than you think.
Other reasons you might consider a VA cash-out?
- You’d like to use your VA loan eligibility and you currently have a different type of mortgage
- You want to remove someone currently on title or on the existing mortgage
- Rates have decreased since your obtained your current mortgage and want to take advantage.
- You have a long term plan or dream that might be financed best through a low long-term payment.
- Covering medical expenses or other emergency expenses
Pros & Cons of a VA Cash-out Refinance
Depending on what your goals are, a VA cash-out loan could be the right choice to help you make them happen. Check out the lists of pros and cons below to weigh the benefits and potential negatives of this type of refinance loan.
Pros of a VA Cash-out Loan:
- Consolidating your debt into a single (home) loan
- Making home improvements
- Creating a large cash reserve for future financial difficulties
- Getting a lower interest rate
- Paying for your child’s college tuition
- Being able to finance 100% of your home’s value (minus any closing costs being rolled in)
- Potentially lowering your interest rate or eliminating mortgage insurance
- Financing the closing costs into your loan
Cons of a VA Cash-out Loan
- Resets the term of your Loan
- More time-consuming than a VA IRRRL
- Requires a home appraisal
- You must continue to occupy as a primary residence
- You may have to repay a VA funding fee
How do I get a VA cash-out refinance?
Essentially, the process to get a VA cash-out loan is the same as the process to get a VA purchase loan. So, if you don’t already have a VA loan, you’ll first need to meet the VA’s eligibility requirements.
Once your eligibility is established, you’ll have to verify your employment and income with your W2 forms for the last two years, two months of pay stubs, your two year job history, or if you are retired or disabled provide proof of income and some additional items. You’ll also need to provide a full accounting of your assets and liabilities and have your home appraised by a VA appraiser. This process typically takes at least 30 days or longer.
Cash-out Refinance FAQs
What is the waiting period for a VA cash-out refinance?
The waiting period or the seasoning period is 210 days minimum from due date of the first monthly mortgage payment on the loan being refinanced. For eligibility the borrowers must meet credit, income and appraisal guidelines, similar to a VA purchase loan.
How much are the costs for a VA cash-out refinance?
The mortgage market is always moving and changing. Rates will vary as the market moves and by lender. VA loans have historically and do have the lowest average fixed rate on the market. The VA limits what lenders can charge to cover their own costs to 1 percent of the loan amount. The VA also sets the appraisal fee, and homeowners can shop around for the best deal on other third-party costs.
How much is the VA Funding Fee on a cash-out refinance?
For first-time users of the VA loan benefit, the VA Funding Fee on a cash-out refinance is 2.3 percent. For those reusing their benefit, the VA Funding Fee on a cash-out refinance is 3.6 percent.
How long does it take to close on a VA cash-out refinance?
Current closing times vary between 20 to 40 days to close depending on VA appraisal turn times and other factors. Every borrower’s situation is different, and some cash-outs might closer faster or take more time pending circumstances. Talk with one of our seasoned VA loan experts today to get an estimate for your loan today.