Why Use a VA Cash Out Refinance?

There are special mortgage programs that veterans have access to. They include the VA cash-out refinance. The VA cash-out is the only type of loan that allows up to 100% of a house’s value to be refinanced – allowing you to tap into all of your home’s available equity.

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The VA cash-out refinance may be used by veterans even if the current mortgage that they have is not a VA loan. The refinancing program may be used to convert FHA loans, conventional loans, or any other kind into a VA mortgage with cash-back received at closing, no mortgage insurance, and low rates.

What is VA Cash Out Refinancing?

A VA loan can be financed in two ways: with VA cash-out refinancing or the VA Streamline Refinance. A VA cash-out refinance out of these two options, offers much more flexibility. You are able to:  

  • Receive up to 100% of your home’s equity at closing as ash back (note, the maximum is 90% with some lenders).
  • Refinance a non-VA loan into a VA one.  
  • Eliminate mortgage insurance if you have a conventional loan that has private mortgage insurance or an FHA loan currently. 
  • Get rid of mortgage insurance if you currently have an FHA loan or conventional loan with private mortgage insurance

Also, under the VA’s new lending rules, VA cash-out loans now can be used by veterans for refinancing up to 100% of the value of your home. This means a cash-out refinance can be used by VA homeowners to tap into all of the equity in their homes. The cash back hen can be used to pay other debts off, real estate investments, home improvements, and the reasons. 

For example, an eligible homeowner may own a house that is worth $400,000 and currently has a $200,000 loan balance. A VA cash-out loan can be open for as much as $400,000 and at closing receive $200,000 less closing costs. VA cash-out refinancing is an outstanding tool that allows veterans to quickly access large amounts of money. 

VA Cash Out Guidelines

Most of the documentation that is required on home purchase loans is necessary for VA cash-out loans as well. This means they require more paperwork and time compared to the VA Interest Rate Reduction Refinance Loan – where this is much less paperwork required. 

If you end up using VA cash-out refinance, you will need to show the following: 

  • Bank statements
  • Income documents (W2s and/or pay stubs)
  • New house appraisal 
  • Credit score or credit report
  • Possibly, tax returns 

You might also be asked to supply a list of all the debts that you will be paying off with the proceeds of your loan if you are planning on using your cash-out funds to consolidate debts. 

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Other requirements for VA cash-outs 

Typically, VA lenders allow up to a 41% debt-to-income ratio. That includes your new house payment and all of your other monthly debt payments (student loans, car payments, etc.)  that can use up to 41% of your total before-tax monthly income. 

You will also need to obtain a Certificate of Eligibility (COE) to establish your eligibility for obtaining a VA loan based on your military service. Your eligibility will depend on the time that you served and how long you served. 

You are most likely eligible to receive a VA loan if: 

  • You served for a least 90 days during wartime and are separated now 
  • 90 days and are on active duty still 
  • 181 days during peacetime and are separated now 
  • Enlisted for 2 years during the post-Vietnam era 
  • Served 6 years in the Reserves or National Guard 
  • Are a surviving spouse
  • Service members who have a non-dishonorable discharge can also establish their eligibility.

VA-approved lenders are able to check eligibility, frequently within a few minutes by making a direct online request with the Department of Veterans Affairs. If you happen to have any U.S. military experience at all, it is worth it to check to see if you are eligible for a VA loan. Keep in mind the VA cash-out refinance can be used to obtain a new loan, even if you do not have a VA-backed mortgage.

Refinance Rates on VA Cash Outs 

VA cash-out refinancing gives active duty service members and veterans an opportunity to refinance with a new loan that has a lower interest rate. Typically, VA interest rates are the lowest rates available in the market due to backing provided by the Department of Veterans Affairs. Our lender network reports that on 30-year VA refinances, the average rate is currently around 2.375% (2.547% APR), while the average on 30-year conventional loans is around 3% (3% APR).

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