VA cash-out refinance: Guidelines and rates for 2020

Tim Lucas
The Mortgage Reports editor

VA cash-out refinance: Low rates and cash back for any loan type

VA home loans have serious benefits, with below-market rates, zero down, and no continuing mortgage insurance. 

Plus, veterans have access to special refinance programs, including the VA cash-out refinance. 

VA cash-out is the only loan that lets you refinance up to 100% of the home’s value — letting you tap all the equity available in your home. 

And veterans can use the VA cash-out refinance even if their current mortgage is NOT a VA loan.

So it can be used to convert conventional loans, FHA loans, or any other type into a VA mortgage low rates and no mortgage insurance. 

Verify your VA cash-out eligibility (Sep 21st, 2020)

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What is a VA cash-out refinance?

There are two ways to refinance a VA loan: with the VA Streamline Refinance (“IRRRL”) or the VA cash-out refinance. Of the two options, a VA cash-out refinance is a lot more flexible. It allows you to: 

  • Receive up to 100% of your equity as cash back at closing (but note, some lenders will only go to 90%) 
  • Refinance a non-VA loan into a VA loan
  • Get rid of mortgage insurance if you currently have an FHA loan or conventional loan with PMI 

Under new 2020 rules for VA loans, veterans can now use the VA cash-out loan to refinance up to 100% of the home’s value.

That means VA homeowners can use the cash out refinance to tap all of their home equity, no matter how large. The cash back can be used to pay off other debt, buy a car, pay for home improvements, or any other purpose.

As an example, an eligible veteran / homeowner might own a home worth $400,000. Their existing loan balance is $200,000. They can open a VA cash-out loan for up to $400,000 and receive $200,000 at closing, less closing costs.

This loan is an excellent tool with which veterans can access large amounts of cash quickly.

Verify your VA cash-out eligibility (Sep 21st, 2020)

VA cash-out guidelines for 2020

VA cash-out loans require most of the same documentation as home purchase loans. (As opposed to the VA streamline refinance, which has reduced paperwork.) If you use the VA cash-out refinance, be prepared to show: 

  • Income documents (pay stubs and/or W2s)
  • Bank statements
  • Potentially, tax returns
  • A credit report 
  • A new home appraisal

You might also be asked for an itemized list of debts to be paid off with loan proceeds.

VA lenders typically allow a debt-to-income ratio up to 41 percent. That means your new home payment plus all other monthly debt payments (car payments, student loans, etc.) can “use up” as much as 41 percent of your before-tax monthly income.

You will also need to establish eligibility for a VA loan based on military service. Eligibility depends on the amount of time served, and the period in which you served. 

You’re probably eligible for a VA loan if:

  • You served 90 days in wartime and are now separated
  • 90 days and are still on active duty
  • 181 days in peacetime and are now separated
  • 2 years if enlisted in the post-Vietnam era
  • 6 years in the National Guard or Reserves
  • Or, if you are a surviving spouse.

Eligibility can also be established for other service persons with an non-dishonorable discharge. VA-approved lenders can check eligibility, often within minutes, via direct online requests to VA.

If you have any U.S. military experience whatsoever, it’s worth checking your eligibility for a VA loan. 

Remember, you can use the cash-out refinance to get a new VA loan, even if your current mortgage is not backed by the VA. 

VA refinance rates

The VA cash-out refinance gives you a chance to refinance into a lower interest rate. VA interest rates are typically the lowest in the market thanks to backing from the Veteran’s association. Today’s average VA refinance rate is just 2.25% (2.421% APR), compared to 2.875% (2.875% APR) for a  conventional loan, according to our lender network*. 

Loan Type  Today’s Average Rate
VA 30-year fixed-rate 2.25% (2.421% APR)
VA 15-year fixed-rate  2.25% (2.571% APR)

*Average rates assume 0% down and a 740 credit score. See our full loan VA rate assumptions here.

VA cash-out benefits: Remove mortgage insurance or convert a non-VA loan

Cash isn’t the only reason to open a VA “cash-out” loan. In fact, the name for this loan is a bit misleading.

The VA cash-out can pay off and refinance any loan type, even if the applicant does not plan to receive cash at closing.

The veteran can 

  1. Pay off a non-VA loan
  2. Get cash at closing, or
  3. Do both simultaneously

The VA Streamline loan, by comparison, is a VA-to-VA loan program only. You cannot use the Streamline Refinance if your current loan is FHA or any other type.

One of the biggest benefits of being able to convert a non-VA loan to a VA loan is that VA loans don’t require ongoing mortgage insurance.  

That means veterans can reduce their homeownership costs by paying off an FHA loan and canceling their FHA MIP. Likewise, VA-eligible homeowners can refinance out of a conventional loan that requires private mortgage insurance (PMI).

Here’s an example.

A veteran purchased a home with an FHA loan in 2016. The outstanding loan amount is $250,000. The FHA mortgage insurance cost is $175 per month.

The veteran can use a VA cash-out loan to refinance the FHA mortgage into a VA one — even if he does not want to take additional cash out. The veteran now has a no-mortgage-insurance loan and, potentially, a new lower rate.

VA financing can be used to pay off any loan with unfavorable terms:

  • An Alt-A loan with a high interest rate
  • Interest-only loans
  • First and second mortgage combo “piggyback” loans
  • Standalone second mortgages
  • Any loan that requires mortgage insurance
  • Construction liens
  • Judgment or tax liens
  • Bridge loans

In short, you can refinance any home loan into a VA loan with more favorable terms — regardless of the type of loan it is.

VA cash-out refinance vs. VA Streamline Refinance (IRRRL): Which is better? 

VA cash-out loan requirements are more stringent — so if you have a VA loan currently, or do not need cash out, the  VA Streamline Refinance is probably a better option. 

  VA Cash-Out Refinance VA Streamline Refinance
Best for Getting cash back Non-VA to VA refinance VA-to-VA refinance No cash back needed
Upfront funding fee 2.3% (first use) 3.6% (subsequent uses) 0.5%
Can be used with non-VA loans Yes No
Allows cash back at closing  Yes No
Limited paperwork  No Yes
Requires new home appraisal Yes No

The VA’s Streamline option does not require an appraisal or income verification. That means it’s often a faster and cheaper way for veterans to refinance into a lower interest rate and monthly payment. 

However, a VA Streamline Refinance does not let you take any cash out. And it can only be used with a current VA loan. For those two scenarios, a VA cash-out refinance is the best (and only) option. 

Verify your VA refinance eligibility (Sep 21st, 2020)

Use VA to refinance a high-LTV mortgage (HARP alternative)

The housing downturn happened over ten years ago, but many veteran homeowners are still feeling the effects.

Tens of thousands of homeowners nationwide are underwater on their mortgages, meaning they owe more than the home is worth.

The good news — for veterans, anyway — is that the VA cash-out refinance can be opened for up to 100 percent of the home’s value. The VA program can refinance a loan to a lower rate even if the homeowner is nearly underwater.

For instance, a veteran received a non-VA loan for $200,000 at an interest rate of 6.5 percent.

Home values dropped, and she was unable to refinance into a conventional loan.

As an eligible veteran, she opens a VA cash-out loan for 100 percent of the home’s current value, paying off the high-interest loan, and reducing her monthly payment.

The popular HARP program was created to help underwater homeowners, but it is only available to those with Fannie Mae- or Freddie Mac-owned mortgages.

The VA cash-out loan is a HARP alternative because it allows eligible veterans to refinance no matter who owns the current mortgage, and even if they owe nearly as much as their home is worth.

Lenders do not require any equity in the home to use a VA refinance.

VA cash-out refinance loan limits

As of January 1, 2020, there are no longer any VA loan limits. Qualified borrowers can finance 100% of the home with nothing down. That applies to both VA purchase and refinance loans.

So, what does “no limit” mean for your cash-out refinance?

It means you can refinance the home for 100% of it’s value and take all your equity out as cash.

Imagine you have a VA loan on a home worth $600,000. In 2020, you still owe $500,000 on the home.

Under the new rule, you could use a VA cash-out refiance to get a new $600,000 loan on that home — allowing you to take the full $100,000 in cash, less closing costs.

That would have been impossible in 2019, when VA loan limits were more or less equal to conforming loan limits.

Under the old rules, the maximum cash-out refinance loan you could have taken would be $484,350.

VA cash-out loans to consolidate mortgages, other debt

Borrowers can take cash out of their homes at the same time they combine first and second mortgages into a single low-cost VA loan. That’s true even if the current mortgages aren’t VA loans.

For example, a veteran purchases a home with an FHA loan then later receives a second mortgage from a local bank.

The eligible homeowner can pay off both loans, eliminate mortgage insurance, and consolidate both loans into one.

If there is cash left over, the homeowner can cover medical bills, handle a family emergency, start a business, pay off high-interest short-term loans or almost any other purpose.

Personal loans as an alternative to a VA cash-out loan

There are a few reasons you may not qualify for a VA cash-out.

One is that you don’t have enough service history. Another might be that you don’t have enough equity in the home. Or the home is in disrepair.

In any case, consider a personal loan for quick funds.

A personal loan is not tied to military service history or the home. The loan is based on your credit profile and history.

You can receive funds up to $50,000 (and in some cases, $100,000) in days, not weeks, and approval is fast. If you’re in search of fast cash for home repairs or any other reason, submit your application for a personal loan.

VA cash-out refinance Q&A

Below are the most commonly asked questions about the VA cash-out refinance program.

Is VA cash-out refinance a good idea?

A VA cash-out refinance is a good idea for two types of people: 1) You want to refinance your current VA mortgage and get cash back at closing; or 2) You have a non-VA mortgage that you want to refinance into a VA loan. For current VA loan holders who do not need cash back at closing, the VA Streamline Refinance is usually a better choice.

How long does a VA cash-out refinance take?

VA cash-out refinancing usually takes about as long as a standard mortgage: 30-45 days on average. That’s because a VA cash-out refinance requires “full underwriting.” The lender has to take all the same steps it would for a purchase loan, including a home appraisal, credit report, and full documentation. By comparison, a VA Streamline Refinance requires fewer documents and can often close in less than a month. 

What is the VA funding fee for a cash-out refinance?

For first-time use, the VA funding fee is equal to 2.3 percent of the loan amount. That includes non-VA loan holders using the cash-out refinance to switch into a VA loan. If you’ve used your VA home loan benefit before, the funding fee will be 3.6 percent.

Why use a VA cash-out when a streamline refinance is easier?

A VA streamline doesn’t require an appraisal — or bank statements or paystubs, W2s, or tax returns, either. However, it is only available if: 1) You have a VA loan currently, or 2) You don’t need any cash at closing.

A VA cash-out is the only VA refinance program that allows you to cash out your home’s equity and refinance out of any loan type.

Do I need a new appraisal for a VA cash-out refi?

Yes. These loans are available up to 100 percent of the home’s current value. To establish new value, an appraisal is required.

Can I get a VA cash-out loan on an investment property?

No. The property on which the VA loan is opened must be the borrower’s primary residence.

What is the maximum VA cash-out refinance loan amount?

You can obtain a VA cash-out loan for up to 100 percent of your home’s value, plus the VA funding fee. For instance, if a veteran’s home appraises at $100,000 and he pays a 2.3 percent funding fee, his total loan amount can be up to $102,300.

Veterans can also add the cost of energy-efficient improvements to the total, even if that raises the loan amount above the full value of the home.

I have an FHA loan. Can I get a VA cash-out loan?

Yes. A VA cash-out loan can pay off and refinance any loan type. You can use it to get out of a loan with a high rate or one that has mortgage insurance.

I have a conventional, Alt-A, interest-only, sub-prime, or privately-held mortgage. Can I get a VA cash-out?

Yes. A VA cash-out refinance can pay off any loan.

I need cash for a car, vacation, wedding, or boat. Can I get a VA cash-out loan?

Yes. There are no restrictions on what you use the cash for. The VA lending handbook says cash can be used for “any purpose acceptable to the lender.” If your lender has a problem with what you are using your cash for, try another lender.

Verify your VA cash-out refinance eligibility (Sep 21st, 2020)

What Is A NewDay 100 VA Loan?

A NewDay 100 is a 100 percent loan-to-value VA cash-out loan, branded with this name. It is exactly the same program as you can get with any VA-approved lender that offers this loan type up to the full value of your home.

My home is in Texas and my lender said I can’t get a VA cash-out refinance

Texas imposes strict home equity laws that limit cash-out financing to 80 percent loan-to-value. Texas law supersedes VA’s 100 percent financing guideline for cash-out loans. If you were turned down, it may have been because you had less than 20 percent equity in your home.

Years ago, my lender told me VA was not a good program and I was put into a non-VA loan.

The lender was wrong. And, it probably should have put you into a VA loan. Other loan programs typically cost more than VA, with higher rates, mortgage insurance requirements, and higher down payments. Now is a good time to remove unwanted loan characteristics with a VA refinance.

Are VA cash-out refinance rates lower than rates for other programs?

Typically, yes. According to mortgage software company Ellie Mae, VA rates in general run about 0.25 percent lower than rates for conventional loans. Lenders charge about the same rates for VA cash-out loans as for VA home purchase loans.

What are today’s VA home loan rates?

Current VA mortgage rates are extremely low. Get a no-obligation quote in minutes. No social security number is required to start, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Sep 21st, 2020)

Step by Step Guide

Refinancing a Home