Cash-Out Refinance
If you are a veteran with an existing home mortgage, you might be eligible to refinance it with a VA home loan. The benefits of a VA home loan include no private mortgage insurance and more favorable terms. Among the refinancing options is a VA cash-out refinance, which allows you to access cash from your home's existing equity.
Navigating the VA loan process can be challenging, but working with VA-approved lenders can help you get started.
On This Page
- What Is a VA Cash-Out Refinance?
- Who Is Eligible for a VA Cash-Out Refinance Loan?
- How Much Can You Borrow?
- Understanding the VA Funding Fee on Cash-Out Refinancing
- VA Cash-Out Refinance Rates
- VA Cash-Out Refinance Rates
- Costs Associated With a VA Cash-Out Refinance
- Benefits of a Cash-Out Refinance
- What You Should Know Before Taking a VA Cash-Out Refinance
- How Does a VA Cash-Out Refinance Compare to Other Loan Options?
- Common Questions About VA Cash-Out Refinancing
- Take Control of Your Financial Future With a VA Cash-Out Refinance
What Is a VA Cash-Out Refinance?
A cash-out refinance loan lets you convert an existing conventional mortgage to a VA loan and take cash out of your home equity. It’s one of two refinance loan options offered by the VA.
Unlike a traditional refinancing loan, a VA cash-out loan provides benefits such as no private mortgage insurance, or PMI. However, you must meet VA eligibility standards.
Unlike a home equity loan, a cash-out loan requires you to have an existing mortgage.
Who Is Eligible for a VA Cash-Out Refinance Loan?
To get a cash-out refinance loan, you must have an existing conventional mortgage and meet the following requirements:
- Service requirement: In general, you must have 90 days of active duty service or 24 months of continuous service, though exceptions apply.
- Certificate of Eligibility, or COE: Your COE shows lenders that you meet the service requirement and are otherwise eligible for a VA home loan.
- Credit requirements: Although the VA doesn’t have specific credit standards, private lenders have their own guidelines regarding credit scores and income.
Additionally, the property you’re refinancing must be your primary residence, not a vacation home or investment property.
How Much Can You Borrow?
There is no dollar cap on the amount you can borrow. However, your lender and the VA will look at the loan-to-value, or LTV, ratio, which expresses how much money you are borrowing as a percentage of your home’s value.
Suppose you have a $200,000 home with $45,000 of equity. You want $25,000 in cash from the refinancing. Subtract the money from the equity to determine the remaining amount of equity in your home, which is $20,000. That means your refinancing loan is for $180,000, so your LTV is $180,000 divided by $200,000, or 90%.
With a conventional loan, private lenders generally require you to have an LTV of 80% or less. Although the VA prefers an LTV of 90% or less, you can have an LTV of up to 100% if your loan meets other requirements.
Understanding the VA Funding Fee on Cash-Out Refinancing
Each VA loan requires you to pay a one-time VA funding fee, which is used to reduce the burden of the program on taxpayers and provide for loan benefits, such as not needing a down payment.
The fee is a percentage of your home’s value and is based on the size of your down payment—the higher the down payment, the lower the percentage. If you’ve never had a VA loan before, the fee ranges from 1.25% to 2.15% of the loan amount. If you’ve had a previous VA loan, the fee is between 1.25% and 3.3%.
The VA funding fee is due at the time of closing. You can also choose to roll the funding fee into your loan, allowing you to pay it off over time.
If you’re eligible for disability compensation from the VA, you don’t have to pay the funding fee.
VA Cash-Out Refinance Rates
Interest rates on VA cash-out refinance loans are frequently lower than rates for conventional refinance loans. The exact interest rate you’ll receive depends on multiple factors, including market trends, your credit score, and the amount of your loan.
VA Cash-Out Refinance Rates
The following are the general steps for a VA loan refinance:
- Check your financial readiness: Review your credit score, income, and overall financial situation to determine if you’re ready for a refinancing loan.
- Get your COE: You can ask your lender to do this for you, or contact the VA directly.
- Find a lender: Contact a veterans’ organization for assistance in finding a lender that has experience handling VA loans.
- Submit required documents: Your lender will want your COE, proof of income, and documentation from your original loan.
- Get an appraisal: An appraiser will determine the value of your home and whether it meets the VA’s minimum standards.
- Be prepared for closing: At the closing, you’ll pay your VA funding fee and other costs, and you’ll receive your cash-out funds and new loan documentation.
You can get started by gathering your financial documents and contacting a financial advisor or veterans’ group if you need help.
Costs Associated With a VA Cash-Out Refinance
A cash-out loan gives you access to your home’s equity, but there are several closing costs associated with it, including an appraisal fee, title insurance fee, and the VA funding fee. Your lender may also have additional charges. The funding fee is generally the largest expense—between 1.25% and 2.15% of your home’s value if you’re a first-time VA borrower.
Most of these fees can be included in your loan, meaning you’ll pay them off over time as opposed to paying a lump sum at closing.
Benefits of a Cash-Out Refinance
While a VA cash-out refinance may not be suitable for everyone, it can offer veterans numerous financial benefits. VA loans tend to have lower interest rates and more flexible terms than conventional loans, and they generally don’t require you to purchase PMI.
A cash-out loan also gives you access to money that can help you meet your financial goals, such as making home improvements or paying for higher education.
What You Should Know Before Taking a VA Cash-Out Refinance
A cash-out refinance may not be the best option in every financial situation. If the money saved from lower interest rates doesn’t pay off closing in 36 months or less, refinancing may not be for you.
Any cash you withdraw reduces the equity you have in your home, which can lengthen your repayment timeline.
How Does a VA Cash-Out Refinance Compare to Other Loan Options?
Most conventional refinancing loans also let you take money out of your home’s equity. While you don’t need to meet VA requirements to get a conventional refinance, you also don’t get VA loan benefits.
A home equity loan lets you borrow against your home’s equity without refinancing your mortgage. You can use this kind of loan even if you’ve already paid off your home, but you won’t get access to any of the VA benefits.
A home equity line of credit, or HELOC, works more like a credit card—it uses your home as collateral to offer a revolving line of credit. A HELOC gives you access to credit in case of an emergency, but it also doesn’t provide any of the VA benefits.
Common Questions About VA Cash-Out Refinancing
The following are answers to common questions we receive about VA cash-out refinancing. If you have any other questions about VA home loans, please contact us today.
What Is the Maximum Amount I Can Borrow With a VA Cash-Out Refinance?
The maximum amount you can borrow with a VA cash-out refinance loan is 100% of your home’s value.
Can I Use a VA Cash-Out Refinance for Home Improvements?
Yes, you can use your cash for home improvements, paying down debt, or other needs.
How Long Does It Take To Close a VA Cash-Out Refinance?
You must wait until your current home loan is at least six months old. The process can take several weeks to several months after you start the application.
Can I Get a VA Cash-Out Refinance if My Home Is Paid Off?
No, you must have a current mortgage on your home to qualify for a cash-out loan.
Take Control of Your Financial Future With a VA Cash-Out Refinance
Access great VA home loan benefits with a cash-out refinance. Lower interest rates and more flexible terms, not to mention cash from your home equity, could be right around the corner. To get started, speak with a trusted VA lender to learn more about refinancing your home.
