Yes - You Can Choose a VA Loan Cash-Out Refinance

Published May 25, 2022

If you're a homeowner who qualifies for a VA mortgage, you might wonder whether a VA cash-out refinance is the right option for you. Fortunately, it is possible to complete a cash-out refinance of a VA loan or to refinance your conventional mortgage to a VA loan. Here's everything you need to know.

Who can - and should - use a VA cash-out refinance?A VA cash-out refinance is an excellent opportunity for borrowers who currently have a VA loan or who qualify for a VA loan. In most cases, VA mortgages offer highly competitive interest rates, so it's often the most cost-effective option for eligible borrowers. A cash-out refinance is ideal for homeowners who have built up equity in their home and who need access to cash. Because VA loans have such great interest rates, this can be a far better alternative to taking out a personal loan or using a credit card for a major expense. 

Are you eligible for a VA cash-out refinance?

If your current mortgage is a VA loan, you most likely meet the credit and military service requirements for cash-out refinancing. To be eligible for a VA loan cash-out refinance, borrowers must also be occupants of the property.Your original mortgage does not have to be through the VA to be eligible for a cash-out VA refinance. As long as you meet the requirements for a VA loan, you can apply for this refinancing option. To prove your qualifications to your lender, you'll need to obtain a copy of your Certificate of Eligibility (COE), a document that from the Department of Veteran Affairs that confirms you've met the service requirements.

Regardless of whether you currently have a VA loan, you'll have to meet your lender's requirements for credit, income, and home equity. Most lenders require a credit score of 580 to qualify for a VA loan cash-out refinance, but some accept lower credit scores. If you’re unsure if you qualify for a cash-out VA refinance, get in touch. We can walk you through the qualifications and what we can do to help you get the refinance you want.

How to apply for a VA cash-out refinance

Once you've selected a lender for your cash-out refinance, the next step is to obtain your COE. You can request this document by mail by filling out the VA Form 26-1880. Conversely, your lender can access the document through the VA's online system.

Next, you'll complete your application for your new mortgage. Your lender will ask for a variety of financial documents, including your tax forms, bank statements, and pay stubs. When your application is approved, you'll go through the appraisal and underwriting processes. Underwriting when you opt for a VA loan cash-out refinance sometimes takes a while, but all you can do at this stage is wait. Once you've received the final approval for your new mortgage, you and your lender will close on the transaction. 

Use cash-out refinance funds to bolster wealth and property value

Some borrowers use the funds from their cash-out refinance to pay down their other debts. If your mortgage interest rate is lower than the rate on your other loans, you can save money by using the cash to repay your accounts.You could also use the money from the refinance to fund repairs or renovations on your home. This can be an excellent way to increase your property value, which can be very helpful when it comes time to sell your home. 

VA cash-out refinance FAQs

How much can you take out on a VA cash-out refinance?Many lenders allow a 100% loan-to-value ratio for borrowers who choose a VA loan cash-out refinance. This means you can borrow 100% of your home's current appraised value. If you have a considerable amount of equity in your home, you could receive a sizable cash payment. However, some homeowners who choose a VA loan cash-out refinance opt to take out a smaller amount so that their monthly mortgage payment doesn't increase significantly. 

Does a VA cash-out refinance require an appraisal?

Lenders always require appraisals when borrowers use a VA loan cash-out refinance. This process determines the amount of money you can borrow. While the lender typically orders the appraisal, you should expect the fee to be included in your closing costs. 

Are there any alternatives to a VA cash-out refinance?

One alternative to a VA cash-out refinance is a VA streamline refinance, which is also known as an Interest Rate Reduction Refinance Loan (IRRRL). The requirements for a streamline refinance are less strict than the requirements for a cash-out refinance, so it's a good option for homeowners who hope to reduce their interest rate. You could also cash-out refinance your current VA loan to a conventional mortgage.

Borrowers who use a VA loan cash-out refinance can use the funds to build wealth and improve their financial situations. If you strategically time your refinance, you may also benefit from a reduced interest rate. There are a number of advantages to this refinancing option, so you should strongly consider it if you qualify.