Homeowners who have served in the military and built up equity in their homes may be eligible for a VA cash-out refinance. This kind of allows you to qualify for a new VA-backed mortgage loan and cash out some of your equity as part of the new loan agreement.
To qualify for a VA cash-out refi, you must either already have a for your home or meet the military service requirements to replace your current conventional loan by refinancing into a VA loan. If you are interested in a VA cash-out refinance, here’s what you need to know.
In this article:
What is a VA cash-out refinance?
How much does a VA cash-out refi cost?
What is a VA cash-out refinance?
A VA loan cash-out refinance allows a homeowner to replace their current mortgage with a new loan with different terms. Typically, you will only refinance your mortgage if you qualify for better terms with a or access equity in your home through a cash-out refinance.
If you choose a , you take out a new home loan for a larger amount than your existing loan and then receive the difference in cash.
VA loans are offered by private mortgage lenders but backed by the U.S. Department of Veterans Affairs. This means lenders take on less risk and can offer lower mortgage rates than with .
You can qualify for a VA cash-out refinance if you already have a VA loan. However, suppose you have a non-VA loan but meet the VA’s military service requirements to qualify for a VA loan. In that case, you might take a VA cash-out refi to take advantage of the lower interest rates or access equity in your home.
Who is eligible for a VA cash-out refi?
There are strict eligibility criteria for VA loans since they are limited to military service members. Specifically, only the following types of borrowers may be eligible for a VA cash-out refinance loan:
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Military veterans
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Active-duty military service members
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Reservists and National Guard members called to active duty
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Reservists and National Guard members who have performed six years of creditable service
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Some surviving spouses
In all cases, military service members must meet the requirements for length of service and must have been discharged under any conditions other than dishonorable.
VA cash-out refinancing is available to any borrower who meets the military service requirements, whether or not they already have a VA mortgage for their home. However, a VA loan cash-out refinance is only available for a currently occupied primary residence. You cannot get a VA cash-out refinance for a second home or investment property.
Beyond the military service requirement, specific lending requirements will vary from one VA lender to the next. Most mortgage lenders have requirements for a , a minimum amount of home equity, an acceptable , and proof of income.
How much does a VA cash-out refinance cost?
Though VA loans are typically less expensive than conventional loans, your VA-backed cash-out refinance will still have various costs. The specific loan terms, rates, and fees will vary depending on the lender. This is why it’s a good idea to get quotes from several mortgage lenders to find the right cash-out refinancing loan for your budget.
However, many VA borrowers will also have to pay the , which is similar to . The fee amount depends on whether the loan is your first VA home loan, or if you’ve already had a VA loan before. The first time you get a VA loan, the VA funding fee is 1.25% to 2.15% of the amount borrowed, while it costs 1.25% to 3.3% for subsequent uses. The exact funding fee amount depends on the size of your down payment.
For example, let’s say you refinance with a loan amount of $250,000. If you originally purchased the home with a conventional mortgage but are now switching to a VA mortgage with a VA cash-out refinance, this will be considered your first use of a VA loan, and you will pay 1.25% to 2.15%, or $3,125 to $5,375. If you purchased the home with an existing VA loan, this is your second use, and you will pay a VA funding fee of up to 3.3%, or $8,250.
You may choose to pay the full VA funding fee as part of your closing costs, or you can roll the funding fee into your loan and pay it off over time.
How to get a VA loan cash-out refinance
If you are interested in taking advantage of a VA cash-out refinance loan, you’ll need to follow these steps:
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Find a mortgage lender: VA loans are offered by private lenders, and you don’t have to refinance with the same company you used for your existing mortgage. Shopping around can help you find the for your needs.
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Get a Certificate of Eligibility (CoE): This certificate indicates you are eligible for a VA loan. You can get your CoE through or your lender.
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Provide proof of income and other documentation: Your lender will require a number of documents as part of the loan process, including your most recent pay stubs, W-2 forms for the past two years, and IRS tax returns for the past two years.
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Close on your new loan: Be prepared to pay refinancing closing costs, including the VA funding fee and any other closing costs imposed by your lender.
VA cash-out refinance FAQs
Can I do a 100% VA cash-out refinance?
Yes, the VA will guaranty a loan for up to 100% of the value of your home. For instance, if your home is valued at $300,000, you can get a cash-out refinance for the total loan amount of $300,000.
How much are closing costs for a VA cash-out refinance?
VA refinance closing costs vary by lender, but the funding fee is relatively easy to predict. Borrowers may need to pay a VA funding fee at closing for their VA cash-out refinancing loan. This fee is 1.25% to 2.15% of the loan amount the first time you use a VA loan and 1.25% to 3.3% for each subsequent use of a VA loan.
What credit score do you need for a VA cash-out refinance?
While the VA does not require a minimum credit score for refinancing, private lenders that service VA-backed loans will use your credit score to determine your interest rate. It’s common for lenders to require a minimum credit score of 620 for a VA cash-out refinance loan.