If you have equity in your home and you are at a point in life where you could use some extra cash to pay for additional schooling, make some home improvements, or just to pay down debt, the VA loan cash-out refinance may be what you are looking for. You’ll be pleased to know the VA cash out can also be used to refinance a non-VA loan into a VA loan. And, the VA will guarantee loans up to 100% of home value.
Maybe you have wondered at just how involved the VA is with your loan. Private lenders back most VA home loans. And, while the VA rarely gets involved in the loan approval process, it guarantees a portion of it. You can talk to your lender for specific dollar limits on the guarantee. If something happens to go wrong and you can’t make your house payments anymore, your lending institution can approach the VA in the event it needs to cover any losses. The VA loan guarantee works like insurance for the lender.
VA Loan Cash Out Refinance Application Process
Major mortgage lenders are familiar with the process of securing a VA loan. You will want to shop around for a reputable lender that gives you a competitive rate. A quick and easy way to shop for lenders is to visit a few of them online and compare their rates and terms. When you have found the right lender for you, contact them to discuss qualifying for a Veteran cash out loan. The lender will make sure you meet basic program requirements, including the following:
- You must also have a good credit history.
- You must qualify financially for the home. For example, your income must be sufficient to meet your monthly mortgage payments, maintain the home, take care of other debts and obligations, with enough left over to cover day-to-day expenses (food, gas, etc.).
- The loan must be your primary residence (the home you will live in).
Do your own leg work in advance by knowing your credit score. You can get your credit score for free (up to three times per calendar year) by contacting one of the “Big Three” credit bureaus at https://www.annualcreditreport.com/cra/index.jsp. Also, use an online mortgage calculator so you know in advance what you qualify for (and what you can afford).
Here are some of the ways in which the VA guarantee allows lenders to provide you with more favorable terms:
- VA may provide assistance if you run into difficulty making payments.
- No down payment (sale price can’t exceed appraised value).
- Lower monthly payment on loan amount (no private mortgage insurance premium requirement).
- No penalty if you pay the loan off early.
- Closing costs you pay are limited by the VA
- Closing costs may be paid by the seller.
On its website the VA reminds you of some additional benefits for a veteran cash out home loan:
- You don’t have to be a first-time home buyer.
- You can reuse the benefit.
- VA loans are assumable, as long as the person assuming the loan qualifies.
- With this program, you can refinance your current loan, whether it’s a VA-guaranteed mortgage or not.
- Usually, the new loan is limited to 90% of the appraised value of the house.
VA Loan Cash Out General Program Requirements
A VA cash out refinance loan is not for everyone. Here are the basic qualifiers:
- Veterans (including Reserve and National Guard members who were called to active duty)
- Active duty service members
- Current Reserve and Guard members (usually after 6 years of reserve service)
- Certain surviving spouses
- Commissioned Officers of the Public Health Service and National Oceanic and Atmospheric Administration are considered to be active duty members and veterans, once discharged.
For your VA loan, you will need a valid Certificate of Eligibility (COE). You can get one from the VA or from a lender using the Automated Certificate of Eligibility (ACE) program. If you need to obtain your COE, contact a lender about obtaining your COE or download VA Form 26-1880, complete it and mail it (with proof of service) to the address listed on the form. You can download the form at http://www.vba.va.gov/pubs/forms/vba-26-1880-are.pdf.