VA Cash-Out Refinance Loans

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The VA offers many options to help veterans make the most of their homeownership including a cash-out refinance. When you have equity in your home, you owe less than the home’s value. Sometimes you need access to that cash, which the cash-out refinance offers.

Current VA borrowers may tap into their home’s equity with the VA cash-out refinance in Colorado, using the cash as needed. Veterans who haven’t used their VA financing benefits yet may also use the program to convert their current loan program into a VA loan.

It’s important to note that a cash-out refinance is not a home equity loan or a second loan on your property. It’s a refinance of your first mortgage – your VA loan or non-VA loan turned VA loan. You pay off your existing first mortgage (VA loan or not) and refinance it for a higher loan amount or into a VA loan if you didn’t have one already.

Just like the VA purchase loan, you may borrow up to 100 percent of the home’s value in certain situations.

How to Use a VA Cash-Out Refinance

The VA doesn’t specify how veterans must use their home’s equity. Unless you have a high debt-to-income ratio and must use the funds to pay off debt, the choice is yours.

Veterans often use the VA cash-out refinance for the following:

• Home improvements – Use your home’s equity to improve your home, thus reinvesting in your home, making it worth more. Not all home improvements increase a home’s value, but if you talk to a licensed appraiser or real estate agent, you can choose home improvements that may increase your home’s value.
• Consolidate debt – If you have high-interest consumer debt, you may use your home’s equity to pay off the debt, wrapping it all into your VA loan at one low interest rate. This helps reduce the total interest you pay, plus the confusion of carrying multiple debts. If you pay high credit card interest rates, you may save a significant amount of money using your home’s equity.
• Other expenses or goals – The VA or the lender doesn’t tell you how you may use the funds. If you want to withdraw your home’s equity to have an emergency fund, save for a vacation, or pay for college, it’s your prerogative as long as you qualify for the VA loan. Lenders only care that you can make your payments on time and afford your other bills/cost of living.
• Convert a non-VA loan – Take advantage of your VA loan benefits by converting your FHA, USDA, or conventional loan into a VA loan. You don’t have to take any cash out of the equity, but you’ll use this program to qualify since you haven’t qualified with the VA program yet. The same requirements apply as a purchase loan. You’ll verify your qualifying factors, proving you can afford a VA loan.

Qualifying for a VA Cash-Out Refinance

Qualifying for a VA cash-out refinance works the same as qualifying for a VA purchase loan. Lenders verify all aspects of your loan application including:

• Credit scores – Most lenders require at least a 620 credit score
• Income/employment – Lenders prefer a 2-year stable income/employment history. If you have unique circumstances, we’ll talk about them and see how we can work through it to get your loan approved.
• Liabilities – Your current liabilities determine how much loan you can afford as the VA prefers borrowers to have no more than 41 percent of their gross monthly income ‘spoken for’ with existing obligations.
• Assets – If you have assets on hand (liquid and non-liquid) it helps improve your chance of approval, as it shows you can pay your loan even if you lose your job.
• Debt-to-income ratios – The VA uses this to compare your gross monthly income to your existing debts. Most lenders allow a 41 percent debt ratio, but a few may go slightly higher in the right circumstances.

You must also prove you intend to occupy the property as your primary residence. Only the VA streamline refinance loan doesn’t have occupancy requirements.

The VA Cash-Out Refinance Funding Fee

The VA funding fee increases when you take cash out of your home or use the VA cash-out refinance program. Rather than 2.3 percent of your loan amount that homebuyers pay, you’ll pay 3.6 percent of the loan amount (unless this is your first time using your benefit). Either way, you may fold the fee into your loan amount.

VA cash-out refinance loans offer competitive rates just like VA purchase loans, giving you easier access to your funds and/or giving non-VA borrowers a chance to use their VA entitlement. I’m happy to help you determine how much equity you have and can tap into to fulfill your financial goals.

Purchase Qualifier Refinance Rate Checker