VA Home Equity Loans | Requirements 2024

By: Rose McMackin Reviewed By: Craig Berry
January 2, 2024 - 8 min read

While there is no VA home equity loan, military borrowers have options for accessing home equity — including the VA cash-out refinance program.

Or, you can use a non-VA home equity loan to tap the home equity you’ve built with a VA mortgage.

Verify your VA cash-out refinance eligibility

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Accessing home equity as a VA borrower

For decades, the Department of Veterans Affairs has helped active-duty service members, veterans, and surviving spouses to become homeowners. One of the most significant benefits of homeownership is the accrued home value — known as “home equity.” That equity can be leveraged in other areas of the homeowner’s life.

Check your home equity loan eligibility. Start here

VA homeowners have the same options for accessing home equity as non-military homeowners. They also have the option of a VA cash-out refinance, which is guaranteed by the VA.

For homeowners looking to access their home equity with a second mortgage, to avoid impacting their current mortgage, there are non-VA home loan products available.

VA home equity options

VA borrowers have three loan options for accessing their home equity:

  1. Home equity loan (HEL): These loans are paid out in a one-time lump sum and typically feature a fixed rate. Borrowers will make monthly repayments, along with their primary mortgage payments. These loans are not offered by the VA but can be used with an existing VA mortgage.
  2. Home equity line of credit (HELOC): Another type of second mortgage that offers revolving credit up to the total loan amount. Once the initial draw period ends and the repayment period begins, you can no longer take cash out and will just make payments toward the loan amount. These loans are not offered by the VA either but can be used with an existing VA mortgage.
  3. VA cash-out refinance: While this is technically a refinance loan, and not a home equity loan, the VA cash-out refinance is a unique mortgage product available to VA borrowers who want to access home equity and still take advantage of the VA loan program’s numerous benefits. This loan would replace the existing mortgage with a new loan.

What is a home equity loan?

Home equity is the amount by which your home value exceeds the remaining balance of your mortgage rate — basically, the part you’ve already paid off and own outright. That means that if your home is worth $200,000 and you owe $100,000 on your mortgage, you have $100,000 in home equity.

Check your home equity loan eligibility. Start here

Home equity loans allow you to use that home equity as collateral for a new loan. It’s similar to a personal loan but is secured by your home, which gives you access to lower interest rates. Home equity loans are also sometimes called “second mortgages” since they exist concurrently with your primary mortgage.

Typically, home equity loans allow you to borrow as much as 80 to 100 percent of the value of your home, less the amount you still owe on your primary mortgage.

That means, with the original $200,000 home example, you could access as much as $160,000 in equity. However, if you owe $100,000 on your primary mortgage, then you could borrow as much as $60,000 with a second mortgage.

2 types of home equity loans

There are two kinds of home equity loans. They each function slightly differently and offer different advantages. The VA does not offer either of these loan products, though both can be used with a VA loan.

Home equity loans (HEL)

A home equity loan resembles your primary mortgage in that you receive all the funds at once, as a lump sum, and then make monthly payments on the loan amount — typically with a fixed interest rate — until the loan is repaid in full.

Home equity line of credit (HELOC)

A home equity line of credit is rather like a credit card secured by your home equity. You have a set limit and can withdraw cash, as needed, up to that limit. During the draw period, which typically lasts 10 years, you can borrow, repay, and borrow again as needed. Once the draw period ends, you can no longer withdraw cash and just make payments. HELOCs are typically variable-rate loans, though some lenders offer them with an initial fixed-rate period.

Check your home equity loan eligibility. Start here

What are the advantages of home equity loans?

Because they use your home as collateral, home equity loans allow borrowers to access much lower interest rates than with credit cards or personal loans.

That means they can be a good option for homeowners looking to fund home improvements, debt consolidation, or even a child’s college education. However, as with a primary mortgage, your home is on the line if you cannot make your second mortgage payments so it’s important to be thoughtful about how you use them.

Why doesn’t the VA offer home equity loans?

The VA loan program’s primary mission is to help military families purchase primary residences.
Home equity loans are a product for existing homeowners, which places them outside the scope of the VA’s core mission.

But even though the VA doesn’t offer home equity loans, VA borrowers can still get a non-VA second mortgage alongside a primary VA mortgage.

VA cash-out refinancing as an alternative to home equity loans

While the VA does not offer a VA home equity loan, it does offer VA borrowers another option for accessing home equity: the VA cash-out refinance.

A VA cash-out refinance replaces your existing mortgage with a new, bigger one and gives you the difference in cash. This allows you to borrow against your home without taking on an additional mortgage and still offers the backing of the Department of Veterans Affairs.

Verify your VA cash-out refinance eligibility

Advantages of VA cash-out refinances

A VA cash-out refinance can be a good option for military borrowers for several reasons, including:

  • High loan-to-value ratio (LTV): Unlike most cash-out refinance or home equity loan products, a VA cash-out refinance lets you access as much as 100% of your home equity. That’s significantly more than conventional cash-out refinances, which typically cap borrowing at 80% of your equity value.
  • Can refinance any loan type: A VA cash-out refinance can be used with any kind of existing mortgage, including FHA and USDA loans. (By contrast, the VA IRRRL streamline refinance can only be used if you already have a VA loan.)
  • No mortgage insurance: Even with a high loan-to-value ratio, the VA cash-out refinance doesn’t require mortgage insurance.
  • VA protections: The VA will not permit a lender to charge more than 1% of the loan amount as an origination fee.

Some private lenders will enforce stricter underwriting rules than the VA minimums, including for loan-to-value ratios or credit score requirements. You may need to shop around for a lender whose requirements suit your needs.

VA cash-out refinance eligibility 2024

Qualifying for a VA cash-out refinance is a bit more complex than the VA’s IRRRL loan, which doesn’t offer cash back.

First, borrowers will need to qualify for the VA program itself. This won’t be an issue for borrowers with an existing VA loan, though borrowers looking to refinance from another loan program may need to demonstrate their VA eligibility.

Then, borrowers will need to meet the loan program’s financial requirements. Mortgage lenders will have qualifying standards beyond the minimums imposed by the VA. The best candidates for a VA cash-out refinance will have:

  • Credit score of at least 620
  • Debt-to-income ratio of 41% or less
  • Proof of income
Verify your VA cash-out refinance eligibility

How to get a VA cash-out refinance: Step-by-step process

To obtain a VA cash-out refinance loan, you’ll need to:

  1. Find a VA lender. Not all lenders offer VA cash-out loans, so you’ll need to find one that does. Ideally, you should compare rates from at least three mortgage lenders before committing.
  2. Request your Certificate of Eligibility (COE). This confirms the details of your military service. You can request it online, by mail, or through your mortgage lender.
  3. Submit your application. You’ll provide your loan officer with all documentation for underwriting, including pay stubs, tax returns, and bank statements.
  4. Finalize the loan. Your lender will walk you through the final paperwork. At this point, you’ll typically pay closing costs, including the VA funding fee.
Verify your VA cash-out refinance eligibility

Pros & cons of VA home equity options

Home equity loans

Fixed-rate, term, and paymentsInterest charged on the total lump sum
Lower closing costsInflexible repayment period
Receive a lump sumSecond monthly mortgage payment

Home equity line of credit (HELOC)

Access funds as neededAdjustable-rate could increase
Pay interest only on drawn fundsDraw period ends, usually after 5 to 10 years
Low closing costsSecond monthly mortgage payment

VA cash-out refinance

Can lower rate on entire mortgage balanceCan increase interest by extending loan term
No mortgage insurance requiredClosing costs will be more expensive
Can refinance any other mortgage typeCould increase interest rate if you already have a low rate
Check your home equity loan eligibility. Start here

VA equity loans FAQs

Can I get an equity loan with a VA loan?

The VA does not offer home equity loans however VA borrowers can access their home equity with another type of loan, including a VA cash-out refinance or a non-VA second mortgage.

Does the VA have a home equity line of credit (HELOC)?

The VA does not offer a home equity line of credit (HELOC). However, it is possible to get a HELOC with an existing VA mortgage loan.

What are equity reserves on a VA loan?

“Equity reserves” is another name for home equity and describes the amount of your home that you own outright. For example, if you owe $100,000 on your mortgage for a home that is worth $200,000, then you have $100,000 in equity reserves.

Can you lose your house with a home equity loan?

Yes, it’s possible to lose your home if you have a home equity loan as lenders will place a second lien on your home. This gives the lender the right to claim and sell your home if you default on the mortgage. A real estate lien lasts for the entirety of the loan term and expires when you pay off the mortgage.

What is the max LTV for a cash-out refinance?

The VA allows you to borrow against as much as 100% of your home equity — also known as a loan with 100% loan-to-value (LTV). However, each lender will set their own rules and not all lenders will allow you to borrow this much. You may need to shop around to find a lender who permits 100% cash-out refinances.

Can you refinance an FHA loan to a VA home equity loan?

Even if your current loan is not a VA loan, if you are an eligible VA borrower, then you can refinance with a VA cash-out loan. There are no VA home equity loans available, regardless of your current mortgage type.

How does a home equity loan work with the VA?

While the VA doesn’t offer a home equity loan, eligible VA borrowers can access their home equity with a VA cash-out refinance or a non-VA second mortgage.

Can I do a 100% VA cash-out refinance?

Yes, the VA allows qualifying VA borrowers to borrow up to 100% of the home’s value. However, individual lenders set independent standards, and you’ll need to find a lender that issues 100% VA cash-out refinances.

How can I get equity out of my house without refinancing?

Borrowers who wish to access home equity without refinancing their mortgage can get a second mortgage, such as a home equity loan or HELOC.

The bottom line: Home equity & VA home loans

Home equity loans are not offered through the VA loan program, so if you decide to seek a second mortgage, you’ll need to shop around for a lender. In today’s market, the best offer may even be through your local bank or credit union.

With a VA cash-out refinance you may be able to access as much as 100% of your home equity, without paying mortgage insurance, as you’ll benefit from the VA guarantee.

Either way, you’ll want to shop around both online and in-person to find the best deal for your financial needs.

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Rose McMackin
Authored By: Rose McMackin
The Mortgage Reports Editor
Rose McMackin is Texas-based writer.
Craig Berry
Reviewed By: Craig Berry
The Mortgage Reports contributor
With over 20 years in mortgage banking, Craig Berry has helped thousands achieve their homeownership goals.