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VA Cash-Out Refinance

Learn how you can convert your conventional mortgage option to a VA Loan with a Cash-Out Refinance.

Published on January 7, 2021

VA cash-out refinancing allows prospective homeowners to take equity out of their home in the form of cash, or refinance a non-VA loan into a VA loan.

When cashing in on equity, you essentially replace your existing mortgage with a new loan that is for more than you currently owe on your home.

Homeowners utilizing a VA cash-out often spend the cash on home improvements or other debt obligations.

How Does Cash-Out Refinancing Work

VA cash-out refinancing works very similarly to a VA purchase loan.

Unlike the VA streamline refinance (IRRRL), prospective borrowers must follow standard credit and underwriting procedures. Standard underwriting means a complete look at credit, debt-to-income, income verification, and even a new VA appraisal.

Additionally, borrowers may be required to pay the VA funding fee. The VA funding fee is either 2.3% or 3.6% on a cash-out refinance, depending on if you've used the VA loan once or multiple times.

VA Cash-Out Requirements for 2021

To be eligible for a VA cash-out refinance, you must meet the VA's basic eligibility requirements and the lender's credit and underwriting requirements.

Basic eligibility requirements typically mean being on active-duty or discharged with anything other than dishonorable while meeting the following service requirements:

  • 90 days during wartime, or
  • 181 days during peacetime, or
  • 6 years in the National Guard or Reserves, or
  • You are a surviving spouse

To check your eligibility for a cash-out refinance, speak with a home loan specialist. You can also learn more about VA loan eligibility here.

Cashing Out Isn't For Everyone

Those wishing to utilize a cash-out refinance should know it costs a significant amount to use this option. Expect closing costs and fees to range from 3-5 percent of the loan amount - in addition to the funding fee.

You can roll these costs into the loan amount if it meets the lender's requirements; however, keep in mind that this is still thousands of dollars. A reputable loan specialist can walk you through refinancing to help determine if it's the best option for you.

Why Use a Cash-Out Refinance?

Cash-out refinancing can cost borrowers thousands of dollars. However, they can also help save thousands, depending on the individual situation.

The VA doesn't restrict what you can use your cash on. Many homebuyers utilize this refinancing method to consolidate high rate debuts, such as credit cards and student loans, into a single monthly payment with a lower rate.

If you're interested in seeing what a cash-out refinance can do for you, get started to see what you qualify for today.