Can you do a cash out refinance on a VA loan?
Is Cash-Out Refinancing Allowed for VA Home Loans?
If you’re a military veteran or spouse who’s taken advantage of a VA home loan, a VA cash-out refinance may help you get a lower interest rate, as well as allow you to access the equity in your home. Unlike typical cash-out refinancing, a VA cash out loan actually allows you to take out cash with a 100% loan-to-value ratio (LTV). That means you can take out all of the equity in your home and convert it to cash.
For example, if you have a $300,000 home and you owe $200,000 on it, you could get the entire remaining $100,000 in equity at closing (minus any closing costs.) Despite the ability to get all of your home equity at once, this isn’t usually a good idea, since it greatly increases the principal of your home loan.
VA cash-out refinancing requirements
Getting a VA cash-out refinance has similar requirements to getting a regular VA home loan. First, you’ll need to have your home appraised, and you’ll also need to provide documentation of your income, usually in the form of pay stubs, W2 forms, or bank account statements. Plus, VA lenders typically allow a maximum debt-to-income ratio (DTI) of up to 41%.
It’s important to note that if you’re not looking to get cash out of your home, or you already have a VA loan, it could be a better choice to get a VA streamline refinance since you won’t need to get your home appraised or verify your income beforehand.
VA cash-out refinancing can be used to pay off or refinance non-VA loans
While the most obvious use for a VA cash out loan is to refinance a VA loan, the program can be used to refinance non-VA loans as well-- and you don’t actually have to get any cash at closing (if you don’t want to, that is.) For example, if a VA-eligible borrower buys a home with an FHA loan, they can use the VA cash-out refinance program to refinance their loan into a VA loan. One of the major benefits of this is that VA loans don’t require any mortgage insurance, so by doing the refinance, the borrower may be able to save a significant amount of money each month-- as well as potentially getting a much lower interest rate on their loan.
VA cash-out refinancing can also help people who are almost underwater on their mortgages
Much like a HARP loan, VA cash-out refinancing can be a valuable tool for eligible borrowers who are almost underwater on their mortgages. Unlike a HARP loan, VA cash-out refinancing is available to any VA eligible borrower, not just those who have mortgages from Fannie Mae or Freddie Mac. Plus, you don’t need any equity in your home to do a VA refinance-- making it an attractive option for borrowers who are in a tough financial position.