October 22, 2021

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VA cash-out refinance: Guidelines and rates for 2021

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Why use a VA cash-out refinance?

Veterans have access to special mortgage programs, including the VA cash-out refinance. 

VA cash-out is the only loan that allows refinancing up to 100 percent of the home’s value — letting you tap all the equity available in your home. And veterans can use the VA cash-out refinance even if their current mortgage is not a VA loan.

This refinance program can be used to convert conventional loans, FHA loans, or any other type into a VA mortgage with low rates, no mortgage insurance, and cash-back at closing.

Verify your VA cash-out refinance eligibility (May 2nd, 2021)

In this article (Skip to…)

What is a VA
cash-out refinance?

There are two ways to refinance a VA loan: with the VA Streamline Refinance (“IRRRL”) or the VA cash-out refinance. Of the two options, a VA cash-out refinance is a lot more flexible. It allows you to:

  • Receive up to 100 percent of
    your equity as cash back at closing (but note, some lenders will only go to 90 percent)
  • Refinance a non-VA loan into a VA
  • Get
    rid of mortgage insurance if you currently have an FHA loan or conventional
    loan with private mortgage insurance

Plus, under new VA lending rules,
veterans can now use the VA cash-out loan to refinance up to 100 percent of
the home’s value.

That means VA homeowners can use a cash-out
refinance to tap all of their home equity, no matter how large. The cash back
can be used to pay off other debt, pay for home improvements, invest in real estate, or any
other purpose.

As an example: An eligible homeowner might own a home worth $400,000, with an existing loan balance of $200,000. They could open a VA cash-out loan for up to $400,000 and receive $200,000 at closing, minus closing costs.

The VA cash-out refinance is an
excellent tool allowing veterans to access
large amounts of cash quickly.

Verify your VA cash-out refinance eligibility (May 2nd, 2021)

VA cash-out guidelines for 2021

VA cash-out loans require most of
the same documentation as home purchase loans.

That means they require more time and paperwork than the VA Interest Rate Reduction Refinance
Loan (IRRRL) — or ‘Streamline Refinance’ — which
has reduced paperwork.

If you use the VA cash-out
refinance, be prepared to show:

  • Income documents (pay stubs and/or
  • Bank statements
  • Potentially, tax returns
  • A credit report and credit score
  • A new
    home appraisal

You might also be asked for an
itemized list of debts to be paid off with loan proceeds, if you plan to use your cash-out
funds for debt consolidation.

Other VA cash-out requirements

VA lenders typically allow a
debt-to-income ratio up to 41 percent. That means your new home payment plus
all other monthly debt payments (car payments, student loans, etc.) can “use
up” as much as 41 percent of your before-tax monthly income.

You will also need to establish eligibility for a VA loan based on military service by getting a Certificate of Eligibility (COE). Eligibility depends on the amount of time served, and the period in which you served.

You’re probably eligible for a VA
loan if:

  • You served 90 days in wartime and
    are now separated
  • 90 days and are still on active
  • 181 days in peacetime and are now
  • 2 years if enlisted in the
    post-Vietnam era
  • 6 years in the National Guard or
  • Or, if
    you are a surviving spouse

Eligibility can also be
established for other service members with a
non-dishonorable discharge.

VA-approved lenders can check eligibility,
often within minutes, via direct online requests to the Department of Veterans

If you have any U.S. military
experience whatsoever, it’s worth checking your eligibility for a VA loan. Remember, you
can use the VA cash-out refinance to get a new loan, even
if your current mortgage is not backed by the VA.

Check your VA refinance eligibility (May 2nd, 2021)

VA cash-out refinance rates

The VA cash-out refinance gives veterans and active duty service
members a chance to refinance into a new loan with a lower
interest rate.

VA interest rates are typically
the lowest in the market thanks to backing from the Department of Veterans Affairs.

Today’s average 30-year VA refinance rate is just 2.375% (2.547% APR) compared to 3% (3% APR) for a 30-year conventional loan, according to our lender network*.

Loan Type  Today’s Average Rate
VA 30-year fixed-rate 2.375% (2.547% APR)
VA 15-year fixed-rate  2.25% (2.571% APR)

*Average rates assume 0% down and a 740 credit score. See our full loan VA rate assumptions here.

VA cash-out
refinance loan limits

As of January 1, 2020, there are
no longer any VA loan limits. Qualified borrowers can finance 100 percent of
their home’s value with
nothing down. That applies to both VA purchase and refinance loans.

So, what does “no limit” mean for
your cash-out refinance?

It means you can refinance the
home for 100 percent of its value
and take all your home equity out as cash.

You can refinance the home for 100 percent of its value and take all your home equity out as cash.

Imagine you have a VA loan on a home worth $600,000. In 2021, you still owe $500,000 on the home.

Under the new rule, you could use
a VA cash-out refinance to get a new loan for $600,000 on that
home — allowing you to take the full $100,000 in cash, less closing costs.

That would have been impossible pre-2020, when VA loan limits were more or less equal to conforming loan limits.

Under the old rules, the maximum
cash-out refinance loan you could have taken would be $484,350. This wouldn’t have paid off the
existing loan balance of $500,000 — and it’s certainly not enough to claim any
home equity as cash.

uses for a VA cash-out refinance

Cash-back isn’t the only reason to open a VA “cash-out” loan. In fact, the name for this loan is a bit misleading.

The VA cash-out can pay off and
refinance any loan type, even if the
applicant does not plan to receive cash at closing.

The veteran can:

  1. Pay off a non-VA loan
  2. Get cash at closing, or
  3. Do both simultaneously

The VA IRRRL, by comparison, is a VA-to-VA loan program only. You cannot use the IRRRL program if your current loan is FHA or any other type.

Use a VA cash-out refi to get rid of mortgage insurance

One of the biggest benefits of converting a
non-VA loan to a VA loan is that VA loans don’t require ongoing mortgage

That means veterans can reduce their homeownership costs by paying off an FHA loan and canceling their FHA MIP.

Likewise, VA-eligible homeowners can refinance out of a conventional loan that requires private mortgage insurance (PMI).

Here’s an example.

A veteran purchased a home with an
FHA loan in 2016. The outstanding loan amount is $250,000. The FHA mortgage
insurance costs $175 per month.

The veteran can use a VA cash-out
loan to refinance the FHA mortgage into a VA one — even if they do not
want to take additional cash out. The veteran now has a no-mortgage-insurance
loan and, potentially, a new lower rate.

Verify your VA cash-out refi eligibility (May 2nd, 2021)

Refinance out of a more expensive loan

VA financing can be used to pay
off any loan with unfavorable terms:

  • An Alt-A loan with a high interest
  • Interest-only loans
  • First and second mortgage combo
    “piggyback” loans
  • Standalone second mortgages
  • Any loan that requires mortgage
  • Construction liens
  • Judgment or tax liens
  • Bridge

In short, you can refinance any
home loan into a VA loan with more favorable terms — regardless of the type of
loan it is.

Use VA to refinance a high-LTV mortgage

The housing downturn happened over 10 years ago, but many veteran homeowners are still feeling the effects.

Thousands of homeowners nationwide are underwater on their mortgages, meaning they owe more than the home is worth.

The good news — for veterans, anyway — is that the VA cash-out refinance can be opened for up to 100 percent of the home’s value. The VA program can refinance a loan to a lower rate even if the homeowner is nearly underwater.

For instance, say a veteran received a non-VA loan for $200,000 at an interest rate of 6.5%.

Home values dropped, and they were unable to refinance into a conventional loan.

As an eligible veteran, they could open a VA cash-out loan for 100 percent of the home’s current value, paying off the high-interest loan, and reducing their monthly payment.

VA cash-out loans to consolidate mortgages
and other debt

Borrowers can take cash out of
their homes at the same time they combine first and second mortgages into a
single low-cost VA loan. That’s true even if the current mortgages aren’t VA

For example, let’s say a veteran purchased a home with an FHA loan, then later got a second mortgage from a local bank.

The VA-eligible
homeowner can now pay off both loans, eliminate mortgage
insurance, and consolidate the two loans into one.

If there is cash left over, the
homeowner can cover medical bills, handle a family emergency, start a business,
pay off high-interest short-term loans and credit cards, or use the cash for almost
any other purpose.

VA cash-out refinance or IRRRL: Which is better?

Between the two VA refinance options, VA cash-out loan requirements are more stringent.

If you have a VA loan currently,
or if
you do not need cash out, the VA Interest Rate Reduction Refinance
Loan (IRRRL) is probably a better option.

  VA Cash-Out Refinance VA IRRRL (Streamline Refinance)
Best for

Getting cash back & Non-VA to VA refinance

VA-to-VA refinance & No cash back needed
Upfront funding fee 2.3% (first use) 3.6% (subsequent uses) 0.5%
Can be used with non-VA loans Yes No
Allows cash back at closing  Yes No
Limited paperwork  No Yes
Requires new home appraisal Yes No

The IRRRL, also known as the VA Streamline Refinance, does not require an appraisal or income verification. That means it’s often a faster and cheaper way for veterans to refinance into a lower interest rate and monthly payment.

You wouldn’t even need to show a Certificate of Eligibility
for an IRRRL since your existing VA loan proves you’re eligible for the VA home
loan benefit.  

However, a VA Streamline Refinance
does not let you take any cash out. And it can only be used with a current VA
loan. For those two scenarios, a VA cash-out refinance is the best (and only)

Start your VA loan refinance today (May 2nd, 2021)

VA cash-out refinance FAQ

Below are the most commonly asked
questions about the VA cash-out refinance program.

How does a VA cash-out refinance work?

A VA cash-out refinance replaces your existing VA mortgage with a new VA loan. If you want cash-back at closing, you can take out the new loan for a larger amount than your existing loan, and receive the difference in cash. However, the VA cash-out refinance does not require you to receive cash-back. If you want, you can use this program to refinance an existing FHA, conventional, or USDA loan into a VA loan with no cash-out at closing.

Is VA cash-out refinance a good idea?

A VA cash-out refinance is a good idea for two types of people. Either you want to refinance your current VA mortgage and get cash back at closing, or  you have a non-VA mortgage that you want to refinance into a VA loan. For current VA loan holders who do not need cash back at closing, the VA Streamline Refinance is usually a better choice.

What is the maximum LTV for a VA cash-out refinance?

You can obtain a VA cash-out loan for up to 100 percent of your home’s appraised value, plus the VA funding fee. For instance, if a veteran’s home appraises at $100,000 and they pay a 2.3 percent funding fee, their total loan amount can be up to $102,300. Veterans and service members can also add the cost of energy-efficient improvements to the total, even if that raises the loan amount above the full value of the home. 

How long does a VA cash-out refinance take?

VA cash-out refinancing usually takes about as long as a standard mortgage: 30 to 45 days on average. That’s because a VA cash-out refinance requires full underwriting — meaning the lender has to take all the same steps it would for a home purchase loan, including a home appraisal, credit report, and full documentation. By comparison, a IRRRL requires fewer documents and can often close in less than a month. 

What is the VA funding fee for a cash-out refinance?

For first-time use, the VA funding fee is equal to 2.3 percent of the loan amount. That includes non-VA loan holders using the cash-out refinance to switch into a VA loan. If you’ve used your VA home loan benefit before, the funding fee will be 3.6 percent.

Why use a VA cash-out when a Streamline Refinance is easier?

A VA Streamline Refinance doesn’t require an appraisal — or bank statements, pay stubs, W2s, or tax returns. However, it is only available if you have a VA loan currently and you don’t need cash at closing. VA cash-out is the only VA refinance program that allows you to cash out your home’s equity and refinance out of any loan type.

Do I need a new appraisal for a VA cash-out refi?

Yes. These loans are available up to 100 percent of the home’s current value. To establish the current home value, an appraisal is required.

Can I get a VA cash-out loan on an investment property?

No. The property on which the VA loan is used must be the borrower’s primary residence.

I have an FHA loan. Can I get a VA cash-out loan?

Yes. A VA cash-out loan can pay off and refinance any loan type, including an FHA, USDA or conventional loan with a fixed or adjustable rate. You can use this refi program to get out of a loan with a high rate or one that has mortgage insurance. 

I have a conventional, Alt-A, interest-only, sub-prime, or privately-held mortgage. Can I get a VA cash-out?

Yes. A VA cash-out refinance can pay off any loan, provided you are VA-eligible and meet cash-out mortgage requirements.

How can I use my cash-out funds?

There are no restrictions on what you use the cash for. The VA lending handbook says cash can be used for “any purpose acceptable to the lender.” That said, some uses for your cash-out refinance are wiser than others. Remember, you’re taking out a new home loan that you’ll have to pay back with interest — likely for 30 years. That’s an expensive way to finance a temporary event, like a wedding or vacation, or a car that will lose its value quickly. Using cash-out funds for a purpose like debt consolidation, however, can be very wise and save you a lot of money in the long run. 

Why can’t I get a VA cash-out refinance in Texas?

Texas imposes strict home equity loan laws that limit cash-out financing to 80 percent loan-to-value. Texas law supersedes the VA’s 100 percent financing guideline for cash-out loans. If you were turned down, it may have been because you had less than 20 percent equity in your home.

Are VA cash-out refinance rates lower than rates for other programs?

Typically, yes. Average VA loan rates are lower than those for a similar conventional or FHA refinance. But remember, rates always depend on the borrower. If someone wants to get a VA loan but has very high debts and low credit, their rate will likely be higher than current average VA rates. 

Can a VA cash-out refinance lower my mortgage payments?

Yes, but several other factors also affect the amount of your mortgage payments. For example, refinancing to a shorter loan term could increase your monthly mortgage payments. But you’d be paying less interest over the life of the loan. If you’re refinancing an existing VA loan simply to reduce your mortgage payments, consider the IRRRL Streamline loan first. 

Why are VA loans so good?

Lenders can offer low-cost loans through the VA lending program because the Department of Veterans Affairs provides a guaranty for part of your loan’s value. The lender would be compensated if you couldn’t repay the loan. Conventional loans don’t offer this guaranty, and thus need to charge expensive private mortgage insurance (PMI) to protect lenders from financial loss. 

Verify your new rate (May 2nd, 2021)

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