Understanding The VA Cash-Out Refinance (Refi)
Andrew Dehan5-minute read
June 28, 2022
A Department of Veterans Affairs (VA) cash-out refinance loan offers a means through which homeowners can get cash in exchange for equity from their home. 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.
See how much cash you could get from your home.
Apply online with Rocket Mortgage® to see your options.
What Is A VA Cash-Out Refinance?
Put simply, a VA cash-out refinance allows veterans, active duty servicemembers, Reserve and National Guard members, and surviving spouses who qualify to get a loan for up to 100% of the appraised value of their home. Loans obtained via the 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).
In effect, 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 many common expenses.
How Do Cash-Out Refinances For VA Loans Work?
As they are backed by the federal government, VA 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.
Who Is Eligible For A VA Cash-Out Refinance?
For starters, you don’t need to already hold a VA loan to access the program. In addition, regardless of whatever type of conventional mortgage (15-year, 30-year, adjustable-rate (ARM), etc.) you have, it’s possible to access funding.
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 for a minimum of 181 days during peacetime or 90 days during wartime
- Provided 6 years of creditable service in the Reserves or National Guard or at least 90 days under Title 32, with at least 30 being consecutive
- Service time requirements are waived if you were discharged based on a service-connected disability
- 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. Note that 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 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 Mortage® you must have a minimum credit score of 620. If your credit score is below 620, you can only cash out 90% of your home's equity.
VA Cash-Out Refinance Rates Vs. Standard Cash-Out Refinance Rates
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 loans. Be sure to check out today’s rates to get the latest information.
Note that 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.
VA Cash-Out Refinance Vs. VA Streamline Refinance: What’s The Difference?
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 (for which the lending process is simplified, helping 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. Note that 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.
VA Cash-Out Refinance FAQs
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 credit score is needed for a VA cash-out refinance?
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 620. If your credit score is below 620 you can only cash out up to 90% of your home's equity.
The Bottom Line
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 (i.e. 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.
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