The VA's Cash-Out refinance loan gives qualified veterans the opportunity to refinance their conventional or VA loan into a lower rate while extracting cash from the home's equity.
With the VA Cash-Out refinance, you have the opportunity to turn the equity in your home into cash. This shouldn't be confused with a home equity loan, which is a second loan that runs alongside your current loan. The VA Cash-Out refinance loan replaces your existing mortgage instead of complementing it.
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 to simply take advantage of lower rates, or to get out of an adjustable-rate loan, or to eliminate costly mortgage insurance with other loan types.
The process for getting a VA-Cash Out refinance is similar to the process for a typical VA purchase loan, including credit underwriting, an appraisal and more.
Guidelines and requirements can vary by lender and other factors.
Here are a few things to keep in mind:
Generally, there are no restrictions on using your cash back. Common uses include, but are not limited to:
Lenders may have caps in place for your loan-to-value ratio, meaning you might still need to keep some equity in the property after the refinance. These kinds of caps can vary by lender.
Those looking to tap into their home’s equity should be aware of a few important considerations.
First, unlike a VA Streamline refinance, homeowners must deal with their closing costs at the closing table. These costs and fees can vary based on a host of factors but typically range from 3 to 5 percent of the loan amount.
In addition, most homeowners have to contend with the VA Funding Fee, which goes directly to the Department of Veterans Affairs to help keep the loan program going. This fee is typically 2.3 percent of the loan amount for first-time users of the VA loan and 3.6 percent for veterans who’ve used the benefit before. Borrowers who receive compensation for a service-connected disability and eligible surviving spouses do not pay this fee.
Homeowners can finance the funding fee into their overall loan amount. But it’s a cost that can stretch your new loan beyond the value of the property and make tapping into your equity more expensive.
Veterans should evaluate VA refinance offers closely, especially unsolicited mailers and advertisements. These often sound too good to be true, and that’s because they are. Some lenders will promise big benefits, but hide a bunch of costs and fees in the fine print. Others won’t clearly explain they’re offering a riskier adjustable-rate loan.
A Veterans United loan specialist can walk you through the fine print of any offer you receive and help you assess whether it’s valid.
Whether refinancing a conventional, FHA or USDA loan, the VA cash-out refinance option is available regardless of loan type. Many homeowners choose the VA cash-out refinance option over other types of loans because of the ability to repay the loan over a longer period of time, and typically, the VA cash-out refinance option comes with a lower interest rate.
To better understand if a VA Cash-Out refinance is right for you and your financial situation, contact the experts at Veterans United Home Loans.