How to Get Out of Your Mortgage with a VA Cash Out Refinance
If you’re a veteran or surviving spouse who wants to get out of a mortgage with a high interest rate, as well as tap into some of the equity in your home, a VA cash-out refinance could be the perfect solution.
Benefits of the VA Cash Out Refinance
Much like regular VA loans, VA cash-out refinancing has major benefits, including:
Lower than average interest rates (much of the time, at least).
No private mortgage insurance (PMI).
VA limits on the amount of closing costs that can be paid.
No prepayment fees allowed.
Ability to get assistance from the VA if you have trouble repaying your loan.
Who is a VA Cash Out Refinance Right For?
How do you know if you should go forward with a VA cash-out refinance? First off, you must be eligible for VA loan benefits. To qualify, you must fit any one of these criteria:
Active duty military personnel after 6 months of service.
Reservists and members of the National Guard with 6 years of service, or 181 days of active service (if called upon).
Surviving spouses of servicemembers who died in combat or as a result of combat-related disabilities.
Military veterans who discharged in any circumstances other than dishonorable.
Some of the most popular reasons that borrowers get VA cash-out refinancing can include paying for college tuition (for themselves or their children), doing renovations or significant home improvements, paying medical bills, or getting cash to start a new business.
How Much Cash Can You Get From a VA Cash-Out Refinance?
As of 2018, you can get up to $721,050 from a VA cash-out refinance. Of course, you’ll need to have all that equity in your home to start out with if you want to take that much out.
Most VA cash-out refinance borrowers take out significantly less, considering the median U.S. home is currently valued at $216,500, which is less than a third of the maximum VA cash-out refinance amount.
VA Cash Out Refinance vs. VA Streamline Refinance
When looking at all the VA refinancing options available to you, you might want to compare VA cash-out refinancing to one of its VA siblings, the VA Streamline Refinance.
VA Streamline Refinancing has its own benefits, like being able to use it on a home that isn’t your primary residence. When compared to cash out refinancing, Streamline Refinancing also has a lower average VA funding fee (0.5% of the loan). Cash-out refinancing, on the other hand, has typical funding fees of between 2.15 - 3.3%. Keep in mind, though, that VA funding fees are sometimes waived, especially for disabled veterans.
Finally, VA Streamline Refinances are slightly more lenient than cash-out refinances, especially when it comes to late mortgage payments in the 12 months before application. While a VA Streamline Refinance allows for one payment that’s 30 days late, VA cash-out refinancing does not allow for any.
To Get a VA Cash Out Refinance, You’ll Need a Certificate of Eligibility (COE)
You’ll need to get a Certificate of Eligibility, or COE, in order to get any kind of VA loan. You don’t necessarily need a COE to start the preapproval process, but you’ll always need one for final approval.
The exact steps you’ll need to take to get a COE differ based on whether you’re active duty, a surviving spouse, national guard, or reserve. To determine the right steps for you, check out the VA’s comprehensive COE guide.
You Don’t Need to Have a VA Loan to Get a VA Cash Out Refinance
Another important note is that your original mortgage doesn’t have to be a VA loan in order to get a VA cash-out refinance. That’s right: if you have a conventional loan, FHA loan, USDA loan, or Jumbo Loan you can still do a VA cash-out refinance -- as long as you’re VA eligible.
But, no matter what kind of loan you’re thinking of refinancing from, make sure you’re actually getting a better rate on your VA cash-out refinance. To do this, compare your VA refinance rate with the APR (annual percentage rate) of your current loan, and remember that you will have to pay a certain amount of closing costs on your new loan.
A VA cash-out refinance is a fantastic way to save money now and in the long-run. To get started working with a VA approved lender, contact home.loans for a free consultation. We’ll be happy to get you started in the right direction.