Suppose you are a veteran needing capital or extra cash to invest in a business or want to minimize your monthly expenses. In that case, a VA cash-out might be the best solution. Unlike streamlined refinances, a VA cash-out refinance allows veterans to take some of the cash equity and use the money however they see fit.
It gives them a chance to renovate their homes, start a new business, and more. If you don’t need the extra cash, it can work as a regular refinance where qualified veterans can choose not to take money off their home equity. Instead, they can take advantage of significantly lower rates on their current mortgage. This allows veterans to reduce their monthly spending on a mortgage, giving them a higher monthly cash flow. They can also adjust the monthly rates to fit their current lifestyle and income.
What is a VA Cash-Out Refinance?
A VA cash-out refinance allows qualified veterans to refinance a conventional type or VA loan at a much lower rate. On top of that, they can also extract cash from their home’s equity. As mentioned earlier, veterans also have the choice not to get cash out if they don’t need it for other expenses.
Since the federal government backs VA loans, a VA cash-out refi presents a lower risk to lenders, meaning borrowers can access financing under favorable and more comfortable loan terms depending on their financial situation.
Getting a VA cash-out to refinance a loan is similar to conventional loans, where the borrower researches and reaches out to lenders. Once the veteran decides on a lender, they will discuss and review the loan and payment terms, choose the best financial institution to work with, and then finally submit the loan application to finish the application process.
Why Should You Consider Getting a VA Cash Out Refinance?
It is difficult to make financial decisions if you don’t have the money to finance your needs, wants, and other business opportunities. If you are a veteran and need cash to pay debts, consolidate loans, or find other investment opportunities that require a large sum of cash—getting a VA cash-out loan on your mortgage is a low-risk solution that only a few individuals qualify for.
The possibilities are endless, with so many ways to use the extra cash you can get from your home equity. If you have no idea how to use the cash wisely, here are some examples of how other veterans use their VA cash out a loan:
You can use your loan to pay off debts. Doing this will allow you to consolidate your debt, giving you lower interest rates and leaving you with only a few lenders to pay monthly, eliminating the need to schedule paying credit card bills, car loans, and other loans.
Some veterans use the extra cash from the refinance loan to make home improvements. If your home is in dire need of improvement, using the extra cash from the refinance loan can provide you with a significant boost to get things going. You can use it to repair leaky pipes and roofs, improve your kitchen, bathroom, and more.
Some veterans use the loan to pay for college expenses for themselves or their children. College loans and expenses can become really expensive, and it would be nice to get a little extra help from your VA cash-out refinance.
Emergencies happen when you least expect them, and some emergencies require you to shell out a huge amount of money. It is nice to know that you can gain access to a VA loan when you need it the most. Some emergencies that require a significant amount of cash are emergency medical expenses when you need to buy a new car for work or for business and other situations that require you to have extra cash.
Although we don’t want you to use the money for unnecessary expenses such as buying luxurious items, it is possible if you decide to take the cash out.
Some veterans use the extra cash to invest in businesses, stocks, and other opportunities to profit from the money. If you have a feasible business idea and need the cash to get you started, applying for a VA cash-out loan is an excellent way to gain access to extra cash.
Some veterans also get a VA cash-out loan to refinance a non-VA loan into a VA-backed loan to reduce their monthly expenses. This is a good way to use your VA loan if you don’t need the extra cash.
Before going through your VA refi loan, you may want to read some of these considerations. Unlike a streamlined refinance loan, you cannot simply roll closing costs on top of your loan. However, you can finance your closing costs with your new loan as long as you meet the lender’s requirements. These fees typically range around 3 to 5 percent of the loan amount.
Homeowners also need to contend with the VA funding fee that goes directly to the Department of Veteran Affairs, which helps keep the program running continuously to help most veterans.
Who is qualified for a VA Cash-Out Refi?
Only a few individuals are eligible for a VA cash-out to refinance, but you don’t need to have a VA loan already to gain access to this program. Regardless of the type of conventional mortgage loan you have right now, it is possible to access a VA cash-out loan. Whether you are on a 15-year, 30-year, or adjustable-rate mortgage, you can gain access to a VA cash-out loan as long as you are eligible. Qualified applicants must have:
Served on active duty for a minimum of 24 months or have been mobilized for 90 days
Provided at least 6 years of creditable service in the national guard or reserves
At least 90 days under Title 32 or Title 10 (note that at least 30 days must be consecutive)
Mobilized before August 1, 1990, for 181 days at the least
If you are a surviving spouse of a service member who died in the line of duty, you are also eligible for a VA cash-out to refinance loan. In addition, you can also be eligible for one of these loans if your service time requirements were waived and you couldn’t fulfil the requirements due to a medical condition.
You should also probably note that:
VA lenders approve loans for individuals and veterans with a credit score of at least 620. However, the minimum loans may vary from lender to lender, the loan amount, and other factors.
Homeowners can finance their closing costs as long as they meet their loan-to-value guidelines.
You have to occupy the property you are refinancing. If not, you may not be approved for the loan—especially if it is for an investment property you rent to someone else.
Not all states have the same policies regarding VA cash-out refinance loans.
Lenders may have caps on the loan-to-value ratio, which means you might not be able to take the full equity amount after the refinance. However, it will still depend on the lender.
VA Cash-Out Rates
You should probably know that the cash-out rates change daily depending on the economy and market conditions. The rates differ depending on your original loan, and it doesn’t matter whether you have an existing VA cash-out loan or other streamlined loans. The loan interest rates don’t change that much, whether you are looking for a 15-year, 30-year, or 30-year VA cash-out jumbo loan—which allows you to choose a loan type that will fit your capacity to pay with the most reasonable interest rates that fit your financial situation.
VA Cash-Out Refinance vs. Standard Cash-Out Refinance
When talking about conventional refinance vs. a VA cash-out refinance, the rates are lower for VA refi loans because the federal government backs them. However, these loans are created for veterans who have served a specific period of time and surviving spouses, making VA loans a benefit for those who have served the country.
Note that getting a VA cash-out refinancing loan will require you to shoulder some of the closing costs, including appraisal fees, title insurance, loan origination fees, and more.
How Do I Apply for a VA Loan?
If you are an eligible veteran or spouse of a veteran, here are the easiest steps to gain access to a VA cash-out refinance loan:
Step 1: Find a lender
You will not go directly to the Department of Veteran Affairs to get a VA cash-out loan. Instead, you will need to go through a mortgage company, private bank, or credit union. The terms and fees may vary, so make sure you check out each possible lender to check out your options and find the best deal for you. However, you should be careful when looking for a lender with terms that are too good to be true. Sometimes the low-interest rates and skipping payments can sound very enticing, but the chances are—the offers are misleading.
Step 2: Request for a Certificate of Eligibility
Now that you have found a trusted lender with terms and fees that work for you, your next step is to get a Certificate of Eligibility or COE from the Department of Veteran Affairs as soon as you qualify.
Step 3: Provide your lender with the information needed
Aside from your COE, your lender will also ask for additional information before approval and closing, such as the most recent copies of your paychecks and pay stubs, W-2 forms for the last 2 years, 1099 forms if applicable, a copy of your federal income tax returns for the last 2 years, and additional information.
Step 4: Closing Process
Once you have submitted all the requirements, the next step is to follow your lender’s closing process and pay all the closing costs. The fees include the VA funding fee and other closing fees. Don’t worry because the fees are typically single payment fees that you only need to pay at closing. However, some lenders will require you to pay interest upfront.
How Long Will You Need to Wait to get the Cash Out Loan?
The waiting period varies from lender to lender. However, don’t expect the process to be quick, as the minimum wait time for most cases is 210 days from the due date of the first monthly mortgage payment on the refinanced loan. However, the closing period takes only 45 to 60 days. But remember that every homeowner’s case is different, which may also affect the duration of the closing process.
How much is the VA funding fee going to cost?
If you are just applying for a VA loan for the first time, the fee is 2.3%. However, if it is your second time getting a VA cash-out to refinance a loan, the funding fee will increase to 3.5%.
What are all the associated costs with my VA cash-out refi?
The fees and rates are affected by the daily market conditions. It also depends on each lender. You will need to prepare to pay closing costs, appraisal fees, and other third-party costs. However, despite these fees, a VA cash-out loan still has the lowest interest rates compared to other loan types.
Do I need to take out cash from my home equity?
No, you don’t need to take out the cash if you don’t need it. Each lender will present different opportunities if you decide not to take the cash, so check out as many lenders as possible to review your options.
Is it possible to do a 100% refinance?
Yes, most lenders will allow you to refinance up to 100%. However, not all lenders are the same, and some will have caps and let you borrow a specific percentage of the value of your home.