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VA Loan Cash Out Refinance

By: Grant Moon 10/23/12 06:54 am

VA Loan Cash Out Refinance

 

The VA home loan has many advantages; zero down payment, reduced closing costs and less rigorous approval guidelines.  One of these advantages includes a cash out refinance option.  What exactly is a VA cash out refinance?

During the process of a VA loan refinance the VA lender will combine the existing VA mortgage plus closing costs into a brand new, refinanced loan.  A VA home loan can be refinanced for many reasons but most often a refinance is performed to change the rate, the term or both.  This means a VA refinance is placed in order to get a lower interest rate, shorten or lengthen the loan term or a combination of either.

However, during this process there is also the possibility of borrowing more than just the existing mortgage and closing costs.  This is VA cash out refinance.  For example, on a house valued at $260,000 the borrower can borrow up to 90% of that amount, or $234,000.  If existing mortgage payoff amount is $200,000 and closing costs on the VA refinance are $5,000, that would leave $29,000 in cash available to the borrower.

VA cash out loans are a popular option as there are no additional qualification guidelines for a cash out loan just as long as the borrower’s debt-to-income ratios meet standard requirements.  The VA’s limits on cash out refinance loans restrict the loan amount to be no more than 100 percent of the value of the property. However, many lenders limited their cash out refinances to 90% of the value. In order to determine the current market value of the home, the VA lender will require a new appraisal on the property.

If you’re considering refinancing your VA home loan to a lower rate or perhaps a different loan term there’s also an option to pull out some additional cash from the equity in your home.  Get some pricing on your VA loan and run the numbers to see if this option makes sense for you.

The VA cash out refinance is also gives you the ability to refinance an existing non VA loan into a VA Loan. These may be an option to consider if you currently have a conventional or FHA which you are paying private mortgage insurance.

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