Homeowners who are active-duty military or veterans may be eligible for a VA cash-out refinance home loan. These loans may allow borrowers to lower their mortgage interest rate while refinancing up to 100% of their home’s value. Borrowers can also transform a non-VA mortgage into a VA mortgage loan, which is a valuable benefit to those who want to cash out their home’s equity to meet other financial needs.
How does a borrower get a VA cash-out refinance home loan? Here are the details.
VA Cash-Out Refinance Home Loan vs. VA Interest Rate Reduction Refinance Loan (IRRRL)
Homeowners applying for a VA refinance loan have multiple options. The loan discussed in this article is the VA cash-out refinance home loan, not a VA IRRRL.
The most significant difference between a cash-out refinance loan and an IRRRL loan is that the borrower can take cash out of the home when refinancing with a cash-out loan.
Regularly referred to as a “streamline” refinance, an IRRRL allows borrowers to switch to a VA mortgage loan from another type of loan. The new home loan can have a different mortgage rate and loan period. A streamline refinance does not allow cash to be taken out from the home’s equity, so the borrower is required to pay all closing costs and fees upfront, out of pocket. The process for a streamline refinance is simple and straightforward, with minimal documentation needed.
VA cash-out refinancing loans give the borrower more flexibility by allowing the home’s equity to be taken out in the form of cash. The home’s equity is given as cash to the borrower and is often used for expenses such as home improvements, debts, college costs, emergency expenses, etc. The new home mortgage can have a different mortgage rate and loan period.
Qualify for a VA Loan
Veterans refinancing with a VA home loan need to qualify for a VA loan, which includes getting a certificate of eligibility (COE).
See the requirements to qualify for a COE here: Eligibility requirements for VA home loan programs.
Requirements for a VA cash-out refinance include:
- The VA does not establish the minimum credit score for a VA mortgage; however, lenders require a minimum credit score ranging from 620 and up.
- The refinanced home must be the borrower’s primary residency.
- The borrower must be an eligible active-duty service member, veteran, or spouse.
- The total loan amount must be equal to or lower than current FHFA mortgage loan limits.
- The loan amount must not exceed 100% of the property value.
In addition to the standard qualification process, borrowers must often meet criteria related to the existing home loan. Therefore, a minimum amount of time must have passed since the issuance of the borrower’s current mortgage. Furthermore, borrowers are typically required to be up to date on all loan payments.
Collect the Documentation to Apply
Besides a COE, borrowers need documentation to show their financial history, which may include paycheck stubs, W-2s, and tax returns. The lender will also need the borrower’s credit report and credit score, and a new home appraisal.
Depending on state and local regulations, some documents may be pulled automatically during the application process, while others may need to be submitted online or brought in as physical copies.
Close and Pay Fees
A VA cash-out refinance home loan includes closing costs and the VA funding fee in most cases. Generally, these costs are deducted from the cash-out amount, so the borrower does not need money upfront.
Consider a VA Cash-Out Refinance Home Loan
Mortgage rates are historically low, and many homeowners will find that they can get better rates if they refinance their homes today. With the real estate market so hot, they may also find that their home’s value has increased more than expected.
Getting a VA cash-out refinance home loan can help homeowners who are active-duty military and veterans take advantage of good market conditions and low mortgage rates to put cash in their pockets and decrease their monthly payments.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.