What is a VA Cash Out Refinance?
According to VA Cash-out refinancing replaces your current mortgage with a new one VA loan, ideally on better terms, while at the same time you can withdraw cash for your own home for various reasons, e.g. B. to upgrade the property or to pay off debts. If your existing home loan is not covered by the VA but you are eligible for a VA loan, you can pay off this refinance to take advantage of the benefits VA refinancing rates.
Let’s say you took out a $ 200,000 home loan and paid back $ 80,000 of it. With a VA Withdrawal Refinance, you can get a loan of $ 200,000 and that $ 80,000 (less Closing costs and fees) at will. For example, if you’ve amassed $ 10,000 in credit card debt at 15 percent APR, a VA disbursement refinance could help you pay that amount off quickly at a much lower interest rate. You can then use the remaining funds to remodel your kitchen or invest in other renovations.
This is how VA cash-out refinancing works
If you have been honorably discharged from the military or are currently on active duty, there is one major benefit to your country being served by your service: the ability to buy a home with a VA loan with no down payment, or to refinance an existing loan.
To apply for VA cash out refinancing, the first step is one Proof of Eligibility (COE) confirming that you meet the service requirements to avail a VA loan.
The process of approving a VA cash out refinance is similar to applying for a traditional refinancing option. VA loans are not provided by the Department of Veterans Affairs, but rather through a variety of varieties Mortgage lenders, therefore, you must meet the lender’s creditworthiness and debt-to-income ratio, as well as all other major standards, to qualify. Be ready to hand in a detailed portrait of your personal finances as well, including:
- W-2 Statements and tax returns for the past two years
- Last month’s pay slips
- Any other documentation your lender asks for
In addition to assessing you as the borrower, the lender must also rate the property so you need to obtain an assessment as well. An appraisal provides information on how much money you can withdraw in cash when you refinance. For example, if your current loan was originally $ 200,000 but the value of your home has since increased to $ 230,000, then you can qualify for more cash.
Note that VA Withdrawal Refinances are only reserved for the house you live in. So if you are looking to refinance a loan on an investment property or second home, there are other options you need to explore.
VA cash-out refinancing costs
A VA cash out refinance can help you save money, but it’s not free. You have to pay the closing costs. Compare at least three VA lender and their respective issuing fees and other fees so you can get a feel for how much you need to bring to the table.
In addition to the closing costs, you pay the VA funding feewhich varies depending on your status as a borrower:
- If you’ve never bought a VA-powered home, the VA payout refinance financing fee is 2.3 percent of the loan amount.
- If you have already used the VA benefit – for example, if you have a VA loan and are refinancing it – the financing fee is 3.6 percent.
You can either prepay this financing fee or add it to your loan. If you choose to include it in the loan, remember that you will pay interest on that amount as well.
Should You Do a VA Cash Out Refinance?
To determine if a VA cash out refinance loan is a good option for you, start by evaluating your existing loan. Ask yourself:
- What is the interest rate on this loan? Take a look at what you are paying for your existing loan. Then compare that to the current VA refinance rates to see how much you can potentially save.
- Are you paying the mortgage insurance for the loan? If your current mortgage is a conventional loan or an FHA loan, you may be paying for mortgage insurance. If you Refinancing in a VA Loan, you don’t have to pay for this insurance.
- What are you going to do with the money? Access to cash at a low interest rate is one of the most important Advantages of a VA cash-out refinancing, so consider your goals for these funds. This could include consolidating debt, financing home improvement, or paying tuition fees.
- How long do you plan to stay in your home? Refinancing isn’t free so you need to make sure you have enough time for those lower monthly payments to add up into one payout. To use Bankrate’s refinancing calculator to understand how many months it will take to amortize the closing costs.
Alternatives to a VA cash-out refinancing
Cash out refinancing isn’t the only option available to military personnel. There are those too VA IRRRL, or cut interest rate refinancing loans, often referred to as VA streamline refinancing. This option applies to homeowners who currently have a VA-backed loan, not to those with conventional or FHA-backed mortgages. The advantage here is the ability to secure a lower interest rate; You cannot take cash out of your equity. The financing fee is much lower – only 0.5 percent – and there isn’t that much red tape as you don’t have to undergo a credit check or get a valuation on the home.
When you are less concerned about lowering your interest rate and more focused on raising cash, here are some things to consider: Home loan or home equity line of credit (HELOC). The interest rates on these types of funding can be higher, but you avoid the VA funding fee, and these options might be more suitable for your situation overall.