The VA provides you with more than a way to purchase a home. Once you are a homeowner, you may be able to take cash out of your home. You’ll have to abide by the seasoning and other requirements the VA allows. Just like your standard purchase, though, the VA is rather flexible. In fact, the VA cash out loan is usually a better choice than a 2nd mortgage or home equity line of credit.
What are the Seasoning Requirements?
The good news is the VA does not have seasoning requirements for a cash out refinance. In fact, you don’t even have to have a VA loan to take advantage of the program. You can refinance from a conventional or FHA loan as well. You just have to have eligibility for the VA program. In other words, you must have served enough time to be eligible.
Because the VA loan provides 100% financing, you likely won’t be able to take advantage of a cash out refinance right away. It could take several years. In the beginning, you pay mostly interest on your mortgage payment. This means the principal balance doesn’t change much or enough for you to refinance. However, something you have working in your favor is appreciation. If your home appreciates in value, you could gain equity faster.
Qualifying for a Cash Out Refinance
The VA requires that lenders verify all aspects of a borrower’s application before approving a cash out refinance. In other words, the lender must verify your:
- Value of your home
The lender must verify that you can afford the higher loan payment by taking cash out. Just like the purchase loan, they don’t have a lot of specific requirements. In general, they want good credit, stable income, and enough equity for you to get the cash out that you need.
Lenders can add their own overlays, though. You may find between three lenders that they each have different requirements. Just shop around and find the lender that will accept your situation. It’s also a good idea to rate shop as each lender may have different rates as well. Rates on a cash-out refinance are often higher than a rate/term refinance because it is slightly riskier.
The Maximum Loan Amount
The VA abides by the national conforming limit for their maximum loan amounts. This means today you can borrow up to $424,100 for your VA loan. However, if you have the value and need more cash than this amount you can. You will have to have equity in the home, though. This is the only time the VA requires equity.
You’ll need 25% of the difference between the maximum allowed and the amount you need. Let’s say you need a $500,000 loan amount. The difference between that amount and the maximum national limit is $75,900. You’ll need $18,975 in equity in order to qualify for a VA cash out loan of that size.
The VA Funding Fee
Just like you paid a funding fee on the VA loan when you purchased a home, you’ll pay it again with a cash-out refinance. The first use will cost you 2.15%, just like when you purchased the home. If you do a cash-out refinance again, though, it will cost you 3.3% of the loan amount. You’ll pay this fee every time you refinance your VA loan or take out a new one.
The VA cash-out refinance makes it easy for you to tap into the equity of your home. If you have a VA loan already, the process is similar. If you have an FHA or conventional loan, you’ll have to get your Certificate of Eligibility in order to take advantage of the loan program. The VA rates are usually lower than any other program, giving you access to a great program at a low cost.