VA loans can easily be refinanced in several ways. The most common form is the VA IRRRL which strictly allows you to refinance your current mortgage into a lower rate with no cash-out. The other option is to refinance with VA cash-out refinancing, enabling you to tap into the equity in your home.
How Much can you Take Out?
The first thing most people want to know is how much cash they can take out of the equity of their home. With the VA loan, you are able to borrow up to 100 percent of the value of your home. The value might be different than the value you purchased the home at, though, depending on how long ago that was. If this is the case, you may have more equity than you thought in your home. A new appraisal will be ordered on your home before you can get fully approved for the loan, so you will know exactly how much money you can borrow. Some lenders are more finicky about the amount that they lend, so you may find that some lenders only allow you to borrow up to 90 percent of the value of the home.
Verifying your Income with VA Cash-out Refinancing
Just as you had to do with your original VA loan, you will need to verify your income with one or more of the following in order to take cash out with a VA loan:
- Paystubs that cover the last 30 days of employment/income
- W-2s from the last two years
- Copies of your last two years’ federal income tax returns if you are self-employed or work on commission
- Verification from your employer that you are gainfully employed, either in verbal or written form
Minimum Credit Scores
The VA is not a real stickler when it comes to minimum credit scores; however, many lenders will impose a minimum. The typical minimum is a credit score of 620, but you may find lenders that require scores either slightly higher or lower than that. The VA focuses more on the credit history than the actual score, with the housing history playing the most important role. The VA cash-out refinancing guidelines require that there are no late housing payments in the last twelve months in order to qualify. This differs from the streamline VA loan, which allows one 30-day late housing payment in the last 12 months.
A Higher Funding Fee
Every VA loan comes with a funding fee. The streamline VA loan has the lowest funding fee rates, while the cash-out loan has the highest fee. As of today, the VA funding fee for a cash-out loan equals 2.15 percent of the loan amount. If you were to use the cash-out option again after your first time, the funding fee increases to 3.3 percent of the loan amount. If you are in the National Guard or Reserves, your initial cash-out funding fee equals 2.4 percent of the loan amount the first time and 3.3 any subsequent times.
Paying the Closing Costs
A great benefit of the VA cash-out refinance is the ability to roll your closing costs into the loan. The fees would come directly from your available equity, lowering the cash you would receive at the closing. If you want to roll the costs the lender charges or the funding fee the VA charges into the loan, you are able to do so. This enables you to come to the closing with no money out of your own pocket.
The VA cash-out refinancing guidelines are fairly straightforward and similar to any other type of loan. Even the cash-out program with VA loans offers a bit more flexibility and lower fees than any other loan, so there are still many benefits of using your entitlement when you need to take some cash out of your home investment. Shopping with several lenders that offer VA loans can help you find the lowest rate and fees in order to maximize the benefits of refinancing your VA loan.