What Is a VA Cash-Out Refinance Loan?
A VA cash-out refinance loan is a type of loan backed by the Department of Veterans Affairs (VA). Like other refinancing loans, a VA cash-out refinance allows you to replace your current mortgage. It’s considered the more flexible of the VA refinancing options because you are able to receive cash and it can be used for paying off non-VA home loans. By taking the equity in your home and turning it into cash, you can use that money to help settle other debts and improve your financial situation, cover emergency expenses, or make improvements to your home.
Pros and Cons of a VA Cash-Out Refinance
When comparing refinancing options, it’s important to weigh the pros and cons of different loan products. Below, we go into more detail about the pros and cons associated with a VA home loan refinance.
Pros of a VA cash-out refinance
Put simply, the primary benefits of a VA cash-out refinance loan include:
- VA cash-out refinancing can be used for paying off VA home loans, FHA loans, Non-QM Loans and conventional home loans
- Cash can be used for virtually any purchase
- No private mortgage insurance (PMI) required
- Improved loan terms (could possibly secure a lower interest rate and monthly payments)
Many borrowers find that VA cash-out refinance loans are advantageous because they can allow for repayment of the loan over a longer period of time, and often at a lower interest rate. However, if you do not need to cash out, you might consider a VA streamline refinance instead.
Cons of a VA cash-out refinance
While there are several benefits associated with VA cash-out refinance loans, there are some potential drawbacks to consider as well. Some of the primary cons of a VA cash-out refinance include:
- Getting a VA cash-out refinance will lead to you owing more on your mortgage, increasing your debt burden and lowering your home equity
- Borrowers will have to pay closing costs and the VA funding fee in order to get a VA cash-out refinance loan
A VA cash-out loan is ultimately determined by your financial situation. While refinancing is often beneficial to those who have improved their credit and overall financial health since applying for their original mortgage, it may be unfavorable for those who have not. For example, if your credit is worse off, a VA home refinance could increase your interest rate and mortgage payment.
Who Should Consider a VA Cash-Out Refinance?
VA cash-out finance loans are designed for VA loan borrowers who want to tap into their home’s equity and receive a lump sum, which is the difference between the new loan amount and how much they owe on their mortgage.
These loans are an alternative to a second mortgage and can be a better option for individuals who want to avoid paying two mortgages each month. Any VA loan borrower, whether you have a traditional VA loan or jumbo loan, can qualify for a cash-out refinance VA loan as long as you meet the refinance guidelines.
VA cash-out refinance loans are available for borrowers who don’t already have a VA loan. With this loan, you can refinance another type of loan into a VA loan, but that means paying VA loan closing costs.
How Does a Cash-Out Refinance Work?
A VA cash-out refinance is based on several factors including an appraisal on the value of your home, the remaining amount on your original mortgage loan, and your financial standing. To determine the cash-out amount, the lender will take the difference between the remaining balance of your mortgage and your home’s current value. Once the amount and terms of the VA cash-out loan are determined, and you agree to them, the new mortgage will begin and you will receive any cash available from the VA home refinance.
Note that while the VA cash-out refinance leverages the equity in your home, it is not the same as a home equity loan. Instead, it replaces the original loan in its entirety.
What’s the Difference Between a VA Cash-Out vs. VA Streamline Refinance?
A VA streamline refinance is another type of refinance loan that replaces your original mortgage loan. However, you can’t refinance with a VA streamline refinance if you don’t already have a VA loan. These loans are designed for different types of borrowers.
For instance, a VA cash-out refinance loan is designed to leverage the equity in your home, giving you a lump sum you can use for anything from paying off debts to making home improvements.
On the other hand, a VA streamline refinance is best suited for borrowers who want to change the terms of their current VA loan. For instance, they can reduce your interest rates, which will reduce your monthly payments, or change your repayment terms.
Who Pays the Closing Costs on a VA Loan?
With a VA cash-out refinance loan, the only out-of-pocket closing costs are the appraisal and pest inspection. The remaining closing costs such as standard underwriting, processing, escrow, and title fees can be rolled into your new home loan along with prepaid interest, prepaid taxes and insurance, and your new impound account.
You can also include the VA funding fee into the loan if needed. It is important to note that including the VA funding fee in your refinance cannot exceed the value of the home. Some borrowers may be exempt from the VA funding fee based on the guidelines set by the Department of Veterans Affairs, which includes certain veterans who were injured while in service. There are three possible VA funding fees for a VA cash-out refinance: first-time use, subsequent use, or exempt.
What Is the Max Cash-Out on a VA Loan?
For VA loans of any kind, there is no standard maximum loan amount. Instead, the Department of Veterans Affairs limits the amount of the loan it will guarantee, which is 25% of the total home loan. Typically, lenders will set loan limits in compliance with Fannie Mae or Freddie Mac. However, those with homes in places that have a higher cost of living may be approved for a larger loan.
In some cases, borrowers may be able to refinance their loan up to 100% of their home’s value with Griffin Funding, however most VA cash-out loans go up to 90%, leaving 10% equity in the home.
Since the amount of mortgage debt you need to refinance affects how much cash you’ll receive to repay your debts and meet other needs, you should keep in mind that including the VA funding fee in the loan can reduce how much you get back.
- Status as a current service member or veteran (and certain spouses)
- Certificate of Eligibility (COE) from the Department of Veterans Affairs
- You must occupy the home as your primary residence (and continue to do so)
- 550 credit score or higher
- Income verification is required
- Must complete an appraisal and pest inspection
Unlike a VA IRRRL loan, your original mortgage does not need to be a VA-backed home loan. For further clarification on VA loan requirements, and to determine whether you qualify, speak with one of our loan officers.
Is a VA Cash-Out Refinance the Right Option for You?
A VA cash-out refinance is best for borrowers who want to tap into their home’s equity, so you must have equity in your home before applying for this loan. In addition, these loans may come with higher interest rates, which could increase your monthly payments, so if you’re happy with the terms of your current mortgage, a refinance may not be the best option.
However, many prefer a cash-out refinance VA loan to a home equity loan or home equity line of credit because they won’t have to repay two mortgages simultaneously.
You can use our free VA cashout loan calculator to run the numbers. The calculator even includes the new VA Funding Fees that went into place on April 7th, 2023.
Want to learn more about the VA loan process or compare your refinancing options? Download the Griffin Gold app today to compare financing options, track home values, access smart budgeting tools, and get personalized support from Griffin Funding mortgage professionals. Whether you want to refinance your mortgage or buy a house, the Griffin Gold app offers valuable tools for buyers and homeowners.
How to Apply for a Cash-Out Refinance Loan
Applying for a VA cash-out refinance is similar to applying for any other mortgage refinancing. You can submit an application for your VA home loan refinance online or by working directly with one of our loan officers.
Once the application is complete, we may request further documentation from you to verify your information such as W2s, tax returns, and your COE, among others. We will then complete the necessary paperwork and order an appraisal for your home, however, you must order the pest inspection. Once the appraisal and pest inspection are complete, we will obtain the loan approval and collect any further documentation that is necessary.
You will then sign your final loan documents, and after they have been carefully reviewed by one of our loan officers, you will receive your funding. While this might seem like a lengthy process, we make every effort to make it a pleasant experience and to have your refinance completed within 30 days.
Refinance Your Home Today
If you’re ready to make the most of refinancing your mortgage, submit an application for a VA cash-out refinance online or call us at (855) 394-8288. Griffin Funding is dedicated to helping our customers find the most advantageous home loan solutions through personalized service and streamlined processes.
Frequently Asked Questions
How long do you have to wait to get a VA cash-out refinance?
How long you have to wait to get a VA cash-out refinance varies by lender. Typically, lenders will make you wait 210 days or more after you make your first original mortgage payment. However, it will vary from lender to lender, so you should speak with them directly if you’re considering this refinancing option.
If you’re wondering if a cash-out refinance loan is right for you, we recommend speaking with your lender to determine when you can apply.
We recommend gathering all your loan documents before applying to help streamline the process, which includes your Certificate of Eligibility (COE) and income documentation like W2s, pay stubs, and tax returns.
Are there limits to how you can use the cash you take out of a VA refinance?
While you use a VA loan to purchase a home, there are no limits on how to use the cash you receive when you refinance your VA loan. Many borrowers use these loans for:
- Home improvements
- Emergency expenses
- Education expenses
- Debt Consolidation
They’re essentially personal loans but with generally lower interest rates, which can allow you to save money in the long run.
What is the maximum loan term for a VA cash-out refinance?
Typically, the maximum loan term for a refinance VA loan is the original term plus ten years. However, loan terms do not exceed 30 years. If your original VA loan term was 15 years, you might have 25 years or more to pay off your cash-out refinance loan.
How much is the VA funding fee for a cash-out refinance?
The VA loan funding fee doesn’t vary based on a minimum credit score requirement like the interest rate. Instead, the VA funding fee for a cash-out refinance is 2.15% for a first-time borrower and 3.3% for subsequent use.
However, the VA funding fee is only 0.5% if you take out a VA streamline refinance. You’ll pay a funding fee of 1.25% to 3.3% for second and subsequent mortgages depending on if you are purchasing a new home or doing a cash-out refinance.
Can I get a VA cash-out refinance loan if I don’t currently have a VA-backed mortgage?
Yes, you can get a VA cash-out refinance even if your original mortgage isn’t a VA loan. In this case, you would essentially be replacing whatever type of mortgage you currently have with a VA loan. In order to do this, though, you must meet the minimum VA loan requirements and have a valid Certificate of Eligibility (COE). Additionally, you’ll have to work with a VA-approved lender and pay the VA funding fee at closing (unless you’re exempt).
Can I get a VA cash-out refinance for a free and clear property?
Unfortunately, free and clear properties are not eligible for VA cash-out refinance loans. In order to get a VA cash-out refinance, you need to have an active loan on the property in question. Thus, you will not be able to complete a VA cash-out refinance if you have already paid off your mortgage in its entirety.
Keep in mind that if you do own your property outright and want to cash in on your equity, you can still apply for a home equity loan (HELOAN), a home equity line of credit (HELOC), or even a standard cash-out refinance.
What is the current VA cash-out refinance rate?
VA refinance rates vary based on the lender you work with and current market conditions. The VA loan refinance rate you qualify for will also depend on your specific financial profile and things like your credit score, DTI ratio, loan amount, and more.
At Griffin Funding, we are very experienced when it comes to dealing with VA loans and offer competitive VA refinance rates for veterans and service members who want to capitalize on their home appreciation through a VA cash-out refinance. Contact us today or fill out an application to lock in your interest rate.