VA Cash Out Refinance Loan is a type of loan that replaces or refinances your current non-VA loan into a VA loan with different terms and agreements from your current loan. Along with this is allowing you to convert cash from your home equity and use this cash to pay important expenses such as paying debts, improving the home, or paying for educational expenses. The VA loan can provide you with up to 100 percent of your home value. To find out more about VA cash-out refinance loans, read further.
Benefits of VA Cash Out Refinance Loan
There are a lot of benefits you can get when you avail of a VA Cash-Out Refinance Loan compared to other conventional loans out there. The benefits are:
- You will be able to receive up to 100 percent of home equity as cashback (although not all lenders go with 100 percent, some only go with 90 percent cashback);
- You can refinance your current conventional loan into a VA loan;
- You can be able to remove mortgage insurance from your current conventional loans such as FHA or USDA loans.
Take note that with a VA cash-out refinance loan, you can avail up to 100 percent of your home’s loan-to-value ratio or known as the LTV no matter how large it is. Say, for example, an individual has a property with a worth value of 400,000 US dollars, while his/her current loan amount is 200,000 US dollars. With a VA cash-out loan, the owner can open a loan amounting to 400,000 US dollars and get 200,000 worth of cashback at the end of the loan terms. Remember to expect that closing costs will be deducted from the cashback amount.
Individuals who fall into any of the categories below may avail of a VA cash-out refinance:
- Veteran citizens;
- Active reserve and national guard members;
- Active service members;
- Reserve and national guard members with 6 years of creditable service; and
- Spouse survivors.
To be eligible for a VA cash-out refinance loan, you must meet the eligibility requirements listed:
- 580-620 credit score depending on the guidelines set by the lender;
- Demonstrate stable employment or income;
- A DTI ratio (Debt-to-Income) of 41 percent or lower;
- You have a sufficient amount of home equity for the cashout (take note that some lenders may advise leaving 10% of your home equity untouched);
- Must have a military service history; and
- Must acquire a Certificate of Eligibility (COE) from your service or duty performed.
In terms of military service history, you may be eligible for the loan if you had a service period of:
- 90 days of wartime military duty and is no longer active in duty;
- 90 days of wartime military duty and still active;
- 2 years of military service if you are enlisted in the post-Vietnam era;
- 181 days of service in peacetime and is no longer active in duty;
- 6 years of military service if you are a national guard and Reserve member; and
- Other service members discharged (the reason for the discharge should not be due to dishonorable reasons).
If you are one of those who have any experience in military service but are in doubt about being eligible for the VA cash-out loan, there is no shame or sin in trying to apply. VA cash-out loan is a good way to receive quick cash in times of need, so applying for it is worth a try.
Obtaining a Certificate of Eligibility
There are several ways you can try in availing of a Certificate of Eligibility, mainly:
- Through the eBenefits platform, you can access through this link: https://www.ebenefits.va.gov/ebenefits/homepage. Tick the Certificate of Eligibility for Home Loan option to get started; or
- Through your lender - In most cases for VA loans, the lender will automatically provide you a COE by using the Automated Certificate Eligibility, or known as the ACE.
How to Avail VA Cash Out Refinance Loan
If you are planning to apply for VA Cash-Out Refinance Loan, just follow the step-by-step process listed below:
- The first thing you will do to avail of such a loan is to find the right lender. You can find several lenders and weigh your options on the one with a reasonable price since the terms and fees vary from lender to lender. Remember though to be cautious about lenders who offer terms that seem too good to be true lest being a victim of scams.
- The next thing you will do is file a Certificate of Eligibility. You can determine if you are eligible for COE or how to apply for a COE using the links and options mentioned earlier. You can talk to your lender about this matter as well.
- Once you have with you your COE, you must make sure to prepare the following documents:
- Most recent payment stubs in the previous 30 days.
- W-2 forms from the last 2 years;
- Income tax return copies from the last 2 years (this depends if your lender requires you to submit this document); and
- Other documents that your lender might require.
- During the closing of your loan, you should follow the closing process that your lender had set. This may include a closing fee and interest costs covered by your cashback.
How to Use My Cashback VA Cash Out Refinance Loan
During the closing of your loan, you are free to use the money for any expenses. It may be any of the following:
- Payment for debts;
- Home improvement expenses;
- Paying for educational costs;
- Paying for medical expenses; or
- Other important expenses.
Frequently Asked Questions
How long will I have to wait to get my VA Cash-Out Refinance?
Waiting periods may vary depending on the lender. Usually, it takes about 210 days starting from the due date of the first monthly mortgage payment of the refinanced loan.
How long does it take to close my VA loan?
The duration of the VA Cash-Out Loan may vary depending on the homeowner’s situation, but generally, the loan takes 45 up to 60 days to close. In some instances, cash-out periods will come earlier. You can talk to your lender or a VA loan expert to know more about VA loan closing periods.
How much is the funding fee for a cash-out refinance?
If it is your first time to avail of a VA loan benefit, the funding fee is 2.3 percent, Whereas if you are reusing your benefit, the funding fee is 3.6 percent.