Understanding The VA Cash-Out Refinance (Refi)

A Department of Veterans Affairs (VA) cash-out refinance loan offers homeowners cash in exchange for their home equity. As you might imagine, it’s a handy tool through which veterans and military service members can access capital or financing on-demand.

Read on to learn more about how refinances work and if a VA cash-out refinance makes sense for you.

A VA cash-out refinance, or “refi,” allows veterans, active duty servicemembers, members, and surviving spouses who qualify, to get a loan for up to 100% of the appraised value of their home.

Loans obtained with the VA program can be used to pay off liens and debt, make home improvements, or utilized as a way to refinance a non-VA loan into a VA loan (which often comes with better terms attached than a conventional loan).

Essentially, a VA cash-out refinance loan allows you to replace your current mortgage with a government-backed loan, or transfer home equity into cash – and apply this cash toward paying off other expenses.

Since VA loans are backed by the federal government, these types of loans present lower overall risk to lenders. That means that borrowers who obtain funds through these programs can access financing under more favorable loan terms.

The process of applying for a VA cash-out loan is similar to that of applying for a conventional loan. It starts by researching lenders, reviewing loan conditions, and – after comparing each lender’s terms – selecting a financial institution to work with, then submitting a loan application.

For starters, you don’t need to already hold a VA loan to access the program. Regardless of whatever type of conventional mortgage (15-year, 30-year, adjustable-rate (ARM), etc.) you have, it’s possible to access funding for a VA cash-out loan.

However, you do need to be eligible for the program – and only certain individuals qualify. To satisfy the minimum requirements necessary to obtain a VA loan, applicants must have:

• Served on active duty for a minimum of 24 continuous months, or mobilized for 90 days
• Mobilized before August 1, 1990 for at least 181 days
• Provided 6 years of creditable service in the Reserves or National Guard or at least 90 days under Title 10 or Title 32, with at least 30 being consecutive
• Service time requirements may be waived if you were medically discharged
• Been the surviving spouse of a service member who died in the line of duty

To unlock access to VA loan benefits, you’ll need to furnish your lender with a copy of a Department of Veteran Affairs Certificate of Eligibility (COE), which confirms that you have met the minimum requirements necessary to qualify for the loan. Any applying veterans and servicemembers must have been discharged under honorable conditions.

To qualify to convert the total amount of your home equity into cash, you’ll need to meet the individual lenders’ minimum credit score requirements and standards for debt-to-income ratios (DTIs). In addition, the home that you’re refinancing must also be your primary residence.

To convert your total home equity into cash with Rocket Mortgage® you must have a minimum credit score of 680. If your credit score is below 680, you can only cash out 90% of your home's equity.

Backed by the Department of Veterans Affairs, VA cash-out refinances are generally considered less risky by lenders. As a result, rates are typically lower than they are for cash-out refinances on conventional home loans. Be sure to check out today’s mortgage rates to get the latest information.

You will also be liable for closing costs (common expenses paid for a mortgage, such as appraisal fees, loan origination fees, title insurance, etc.) at the time that you close on a VA cash-out refinance. You may also be required to pay a VA cash-refinancing fee.

Current VA Cash-Out Refinance Rates

A VA cash-out refinance is the only option for those who don’t already have a VA loan. However, those who do have a VA loan already may wish to consider a VA streamline refinance or interest rate reduction refinance loan (IRRRL), which can help you lower your interest rate or extend your repayment term. A VA streamline refinance loan (a simplified lending process to help cut time and cost) can be obtained for up to 120% of your home’s current value.

An IRRRL also offers further upsides in the form of a reduced, one-time VA funding fee in lieu of a monthly mortgage insurance charge. This fee (roughly 0.5% of the total loan amount) can either be built into the loan itself or paid upfront. The funding fee may be waived for those receiving VA disability, applying as a surviving spouse of a veteran who died while in service (or due to a service-related disability) or Purple Heart recipients serving in an active duty capacity.

We’re answering all your questions on VA loan cash out refinances.

If I do a VA cash-out refinance, do I have to take out cash?

Curiously, the answer is no. In the case of borrowers with a preexisting VA mortgage loan who don’t want to take out any cash, a VA streamline refinance will present the quickest and easiest solution. Be sure to compare lenders and offers as you go about the process of researching potential opportunities.

What are the VA cash-out refinance credit score requirements?

This will largely depend on your lender and the amount of lending risk they’re willing to take on, though the VA imposes no minimum credit requirement. Rocket Mortgage accepts applicants with a credit score as low as 580.

Before deciding on a VA cash-out refinance, talk to your lender to learn what qualifications are needed to be eligible.

Can I do a 100% VA cash-out refinance?

Yes! As mentioned above, most lenders will allow you to refinance up to 100% of your loan-to-value ratio (LTV) in a VA cash-out refinance. However, some will only permit you to borrow a maximum of 90% of your home’s appraised value. It’s important to have a conversation with your lender to learn how much cash you can take out when you refinance.

At Rocket Mortgage you can cash out 100% of your home's equity with a credit score minimum of 680. If your credit score is below 680 you can only cash out up to 90% of your home's equity.

VA cash-out refinances can present a great opportunity for eligible borrowers, who can use these financial programs to put more money back in their pocket to help fund repairs and renovations, save for retirement or pay for educational expenses.

Refinancing under these programs may also help you get better loan terms (for instance, lower interest rates, smaller monthly mortgage payments or the elimination of mortgage insurance fees) if you replace a conventional loan with a VA-backed loan instead.

Applying for a VA cash-out loan can be a helpful way to improve your overall financial well-being or even extend the amount of time that you have to repay your loan. Just be sure you qualify before starting the application process and shop around when considering potential lenders.

Wondering just how much you stand to save by applying for a VA cash-out refinance? Check out our refinance calculator to get an estimate!