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What is a VA Cash-Out Refinance?

What You'll Learn: Learn How VA Cash-Out Refinance Replaces Your Current Home Loan With a New VA Mortgage.

EXPECTED READ TIME: 6 MINUTES

A VA cash-out refinance replaces your current home loan with a new VA mortgage. Plus, since it’s a cash-out — you’ll receive funds at closing. That means you will be replacing the home loan you have now with a larger one. As long as you qualify, a veterans cash-out refinance can refinance a VA loan or non-VA loan like a conventional, FHA, USDA, or a jumbo loan.

VA Cash-Out Refinance Rates

Interest rates for cash-out refinances are higher than for rate-and-term VA refinances like the Interest Rate Reduction Refinance Loan (IRRRL). Generally, cash-out refi’s have higher rates even if it’s not a VA loan. Taking cash out instead of keeping the balance the same and only changing the term or lowering the rate adds risk for the lender.

VA Cash-Out Refinance Rates

When it comes to cash-out refi’s — VA cash-out mortgage rates are some of the lowest compared to other loan types. That’s because VA mortgage interest rates are generally lower than rates for conventional and other loans.

But, as we discussed above, VA jumbo cash-out rates are higher than the VA IRRRL refinance because of the added risk.

VA Cash-Out Refinance Guidelines

The Veterans Administration has mortgage guidelines that all lenders need to follow. In addition to following VA guidelines, each VA-approved lender will have borrower requirements that can be stricter. Here are examples of VA guidelines vs. the lender guidelines.

Guidelines

VA

Typical Lender

Minimum credit score

No minimum

580

Maximum LTV cash-out

100%

90%

Maximum loan amount

No maximum

$1,500,000+

VA Cash-Out Refinance Texas

Texas mortgage guidelines are different than other states. All cash-out refinances must adhere to the Texas Constitution and VA underwriting guidelines. Veterans cannot take any equity out of their homes with a VA loan in the state of Texas.

Best VA Cash-Out Refinance Lenders

No matter what type of home loan you’re looking for — it’s always wise to shop around. Compare the rates and loan fees, including discount points, if you want to buy down your interest rate even lower.

If you compare banks and mortgage brokers to credit unions, you may find credit unions offer lower rates and fees. That’s because banks and mortgage brokers are “for-profit” and work to maximize profits for their shareholders. And credit unions are “non-profit,” so their earnings are put back into the credit union, and they can offer lower rates and fees to its members.

Funding Fee for VA Cash-Out Refinance

One significant cost you’ll have is a VA cash-out funding fee which will vary depending on the loan amount and if it’s your first or subsequent use. Here’s the chart from VA.gov.

First use

After first use

2.3%

3.6%

When you’re comparing loans, make sure to include the VA cash-out refinance funding fee to see if a VA loan is the best deal.

VA Funding Fee Cash Out Examples

First use 2.3%

After first use 3.6%

$200,000 loan amount — $4,600

$200,000 loan amount — $7,200

$400,000 loan amount — $9,200

$400,000 loan amount — $14,400

$800,000 loan amount — $18,400

$800,000 loan amount — $28,800

And when you’re comparing jumbo cash-out refinance rates, although VA rates are low, you have to consider the funding fee.

VA Max Cash-Out LTV

Here is what the VA states about the loan-to-value:

“Loan-to-Value (LTV). VA will no longer guarantee to refinance loans when the LTV exceeds 100 percent. Inclusion of any funding fee that is financed, in part or whole, cannot cause the loan to exceed the reasonable value of the property.”

Although a borrower could get a cash-out refinance for 100% of the property value (minus the funding fee if that’s included in the loan) under the VA guidelines, most lenders won’t go that high.

The VA cash-out LTV that most lenders offer is 90%.   Use VA cash-out calculator so you can see how much cash you could get. You can also see what closing costs could be, including the funding fee.

Popular Uses for a VA-Cash Out Refinance

When you get a cash-out refi, keep in mind you don’t have to take the max LTV VA cash-out. Just take the amount you need. Here are some of the most popular ways veterans and service members use their equity:

  • Home improvements
  • Pay down high-interest credit cards
  • Invest in another property

As you can see, there are a lot of potential advantages to a VA cash-out refinance.

To learn more about PenFed loans or what loan is right for you:

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