VA home loans are known for their competitive interest rates and no down payment requirement, but they come with another overlooked perk: one of the best cash out refinance programs available.
Loan Numbers on the Rise
A growing number of VA borrowers are turning to cash-out and other financing programs.
The number of VA cash out refinance loans doubled between 2012 and 2016 to 137,00 compared with 215,000 interest rate reduction loans and 353,000 VA purchase loans. If you’re considering a cash out refinance of your VA mortgage, here are 5 things you should know.
1. VA Cash Out Refinancing Works with Non-VA Loans
The VA cash out refinance loan allows qualifying veterans to refinance an existing VA loan and take the difference in cash or pay off an existing non-VA loan. If you have an FHA or conventional mortgage, for example, you can use the VA refinance program to enjoy the benefits of a VA mortgage, eliminate mortgage insurance, and receive your equity in cash for any purpose. If you are refinancing a VA loan, your entitlement can be restored for the purpose of the refinance.
2. An Appraisal and Underwriting Is Required
VA cash out refinancing requires a new home appraisal to determine the value of your home. This will determine how much equity you can take out of the property and the size of your new mortgage, as many lenders allow you to refinance up to 100% of your home’s value. You will also need to go through underwriting for the new loan which involves verifying your income and credit. There must be enough VA entitlement to cover the new loan amount but this usually isn’t an issue when refinancing a VA mortgage.
3. You Can Borrow Up to 100% of Your Home’s Value
Because VA home loans are one of the only mortgage options that allow 100% financing, many lenders allow you to borrow up to 100% of your home’s value with a cash out refinance. As a general rule, the maximum loan amount cannot exceed the value of the home, but there are exceptions: you can add the costs of energy efficient home improvements to your loan as well as the funding fee.
4. A Cash Out Refinance Is More Flexible Than a Streamline Refinance
The cash out refinance is just one of two refinance programs available for VA loans. The other option is the streamline refinance, also known as the Interest Rate Reduction Refinancing Loan (IRRRL). The IRRRL program only allows a loan large enough to pay off your existing balance and closing costs, and it can only be used to refinance a VA loan. With the cash out option, you can refinance a non-VA loan and choose to receive cash back at closing.
5. No Out-of-Pocket Costs Necessary
You can choose to pay closing costs on a VA cash out loan or you can have the loan structured for no out-of-pocket costs. The cash out program allows borrowers to roll the funding fee and other closing costs into the loan to access equity or refinance a non-VA loan without upfront costs.
There are a number of reasons to consider a VA Cash Out Refinancing Loan. If you’re in the market for a home, we’re here to help make your dream a reality. If you have questions, contact one of our loan experts today.