A VA Cash-Out Refinance allows a veteran or active duty service member to tap into the equity in their home and pull out cash to use at their disposal. There are a number of reasons why one would use a cash-out refinance, including paying off debt, upgrades or renovations to your home, emergencies, or simply pulling out cash for other ventures.
There are times in life when having a little extra cash could be a huge benefit. From paying off debt and upgrading or renovating your home to needing cash for emergencies, life happens and being able to take out cash from the equity in your home can be a powerful tool. If you find yourself needing to tap into the equity of your home, the VA Cash-Out loan could be a great option. It is also the ideal loan for eligible military families and veterans who want to refinance another loan type into a VA Loan.
This loan helps you get cash from the equity in your home while still taking advantage of the same great VA Loan benefits. With a VA Cash-Out refinance there is no private mortgage insurance (PMI).
In order to be qualified to use a cash-out refinance, the equity in your home must be equal-to or greater-than the amount of money you wish to pull out or use, plus the costs associated with facilitating the refinance, known as closing costs.
Do I have to have a current VA Loan?
While you need to be eligible to receive a Certificate of Eligibility, you don’t need to be in a current VA Loan to take advantage of this refinance option. In fact, all you need is your certificate of eligibility from the VA (COE). Eligibility requirements for the VA loan is straightforward and spelled out by the Department of Veterans Affairs. If you are eligible to receive your COE, you can take advantage of any VA loan product.
With your COE in hand, your new VA Cash-Out refinance loan will then replace your existing mortgage and can represent up to 100% of the property’s value.
Funding fees with VA Cash Out
Similar to other VA Loans, this refinance is subject to a funding fee which is added to the total loan. The fees for the VA Cash Out are the same as those you’d find in traditional VA Home Loans at 2.3% for first time users and 3.6% for each subsequent use. Exceptions can be made in certain circumstances like when a veteran has 10% or greater disability or an active duty member has been awarded the purple heart.
Eligibility and requirements for getting approved
The VA Home Loan is an incredible benefit available exclusively to military families and veterans. Many military families don’t take advantage of this loan simply because they don’t know they’re eligible. The Department of Veterans Affairs has laid out very specific VA Home Loan eligibility requirements. In addition to active duty members and veterans, there are a few distinct groups that are also eligible.
Members of the Army, Navy, Air Force, Marine Corps, or Coast Guards
- If you served between September 15, 1940-present day
- If you’re active duty and have served
- At least 90 consecutive days during war time
- At least 180 consecutive days during peacetime
- Veterans who served 24 months consecutively and were honorably discharged
- Veterans who were discharged prior to 24 months due to service-related injuries may also be eligible
Members of the Reserves and National Guard
- If you have completed 6 years of honorable service
- Who were mobilized for active duty service for at least 90 consecutive days under Title 10 or Title 32 orders
- If you’ve been discharged due to a service-related injury
- If you met requirements during those years
Surviving Military Spouses
- If you’re an unremarried spouse of a veteran who died while in service or from a service-connected disability
- If you’re a spouse of a military member who is a POW (prisoner of war) or MIA (missing in action)
Want to fast track your approval?
Start with an Instant Prequalification.
In order to qualify to take advantage of a cash-out refinance, the equity in your home must be equal-to or greater-than the amount of money you wish to pull out or use, plus any closing costs and the funding fee. This new loan, like the VA IRRRL, will then replace your existing mortgage and can represent up to 100% of your property’s value.
Since you are looking to tap into the equity of your home with this loan, you’ll need to go through the same steps as you would with a traditional VA Home Loan. In order to get started you’ll need to contact your lender and apply for the Cash-Out refinance.
For those who are looking to refinance their other loan into a VA Loan with the Cash-Out refinance, you’ll need to first obtain your COE. To obtain your COE, you’ll need to gather documents providing your eligibility like a copy of your discharge of separation papers or statement of service. Once you have all the papers you need, you can apply online, by mail, or by working directly with a VA-approved lender like MHS Lending.
What happens next?
Once you’ve obtained your COE through the VA or through your VA-approved lender and have been pre-approved, it’s time to jump into the home buying process.
- Speak with a VA lender: this phone call will answer a lot of your questions about what your options are.
- Submit all documents to your lender: this will happen right after you and your lender discuss your options. Your lender will supply you with a list of documents to submit and that will get the loan started!
- Lock in your interest: once you and your lender have spoken and come to an agreement and you’ve submitted your documents for review, you’ll be given an opportunity to lock in your interest rate. Typically you can lock it in for 15, 30, 45, or 60 days. Be sure to lock your rate for long enough to get all of the refinance completed. Inspections can take a while so don’t be afraid to go with something outside of 30 days.
- Get a home appraisal and termite inspection (if applicable): now that you have decided to move forward with the refinance, you’ll move forward with the loan process and will begin the inspection and appraisal process.
- Receive approval: after all your documents have been reviewed you’ll receive underwriting approval and can go to closing.
- Close on your home: after you’ve gone through the full approval process and all inspections and are ready to go, your lender will clear you for closing!
- Sign your final loan documents: congratulations, you have completed your refinance!
Do I need inspections?
Depending on the length of time from when you first bought your home to when you are trying to use a cash-out refinance, you will likely be required to order a termite inspection as well as an appraisal just like when you originally bought the house.
Documents that will be reviewed
Your lender will need to obtain very specific documents and verifications to submit to the underwriters in order to complete the loan process and get approval. These documents include:
- Credit report to ensure the borrower has a good credit score and no red flags on past credit like bankruptcy or other financial issues.
- Employment verification to show how much income borrowers have now, and any anticipated additional income as laid out in employment agreements. Documents to help with this include:
- W-2’s from the last two years.
- Pay stubs from the last 30-60 days prior to applying.
- Tax Returns from the last two years
- Tax Returns from the last two years
- Asset information including statements from all bank accounts such as checking, savings, and retirement accounts.
- Any additional income asset or liability information like dividends, overtime, pension, child support, etc.
- Current Mortgage / Home Documents like your mortgage statement (monthly bill), your mortgage note (agreement with current lender) and a copy of your Homeowners insurance policy
- Certificate of Eligibility (also known as COE and document specifically needed for VA Loans only) in order to identify a few critical factors specific to veterans and service members. First, the amount of available entitlement for the veteran or military member is determined, then the status of exempt/non-exempt from the funding fee is confirmed and finally the amount of VA monthly service-connected disability compensation is checked.
Start with an Instant Prequalification.
If all of these documents are checked and approved, underwriters can issue a “clear to close'' which means borrowers are ready to go to the final stage of the process, closing.