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VA cash-out refinance: Guidelines and rates for 2020

Tim Lucas
The Mortgage Reports editor

Why use a VA cash-out refinance?

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 allows refinancing up to 100 percent 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.

This refinance program can be used to convert conventional loans, FHA loans, or any other type into a VA mortgage with low rates and no mortgage insurance.

Verify your VA cash-out refinance eligibility (Dec 3rd, 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 percent of your equity as cash back at closing (but note, some lenders will only go to 90 percent)
  • 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 private mortgage insurance

Plus, under new VA lending rules, veterans can now use the VA cash-out loan to refinance up to 100 percent of the home’s value.

That means VA homeowners can use a 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, pay for home improvements, invest in real estate, or any other purpose.

As an example, an eligible homeowner might own a home worth $400,000, with an existing loan balance of $200,000. They could open a VA cash-out loan for up to $400,000 and receive $200,000 at closing, minus closing costs.

The VA cash-out refinance is an excellent tool allowing veterans to access large amounts of cash quickly.

Verify your VA cash-out refinance eligibility (Dec 3rd, 2020)

VA cash-out guidelines for 2020

VA cash-out loans require most of the same documentation as home purchase loans.

That means they require more time and paperwork than the VA Interest Rate Reduction Refinance Loan (IRRRL) — or ‘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 and credit score
  • A new home appraisal

You might also be asked for an itemized list of debts to be paid off with loan proceeds, if you plan to use your cash-out funds for debt consolidation.

Other VA cash-out requirements

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 by getting a Certificate of Eligibility (COE). 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 members with a non-dishonorable discharge.

VA-approved lenders can check eligibility, often within minutes, via direct online requests to the Department of Veterans Affairs.

If you have any U.S. military experience whatsoever, it’s worth checking your eligibility for a VA loan. Remember, you can use the VA cash-out refinance to get a new loan, even if your current mortgage is not backed by the VA.

Check your VA refinance eligibility (Dec 3rd, 2020)

VA cash-out refinance rates

The VA cash-out refinance gives veterans and active duty service members a chance to refinance into a new loan with a lower interest rate.

VA interest rates are typically the lowest in the market thanks to backing from the Department of Veterans Affairs.

Today’s average 30-year VA refinance rate is just 2% (2.169% APR) compared to 2.625% (2.625% APR) for a 30-year conventional loan, according to our lender network*.

Loan Type  Today’s Average Rate
VA 30-year fixed-rate 2% (2.169% APR)
VA 15-year fixed-rate  2% (2.319% APR)

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

VA cash-out refinance loan limits

As of January 1, 2020, there are no longer any VA loan limits. Qualified borrowers can finance 100 percent of their home’s value 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 percent of its value and take all your home equity out as cash.

You can refinance the home for 100 percent of its value and take all your home 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 refinance to get a new loan for $600,000 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. This wouldn’t have paid off the existing loan balance of $500,000 — and it’s certainly not enough to claim any home equity as cash.

Best uses for a VA cash-out refinance

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.

Get rid of mortgage insurance

One of the biggest benefits of converting 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 costs $175 per month.

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

Refinance out of a more expensive loan program

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.

Use VA to refinance a high-LTV mortgage

The housing downturn happened over 10 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 they were unable to refinance into a conventional loan.

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

VA cash-out loans to consolidate mortgages and 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, let’s say a veteran purchased a home with an FHA loan, then later got a second mortgage from a local bank.

The VA-eligible homeowner can now pay off both loans, eliminate mortgage insurance, and consolidate the two 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 and credit cards, or use the cash for almost any other purpose.

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

When it comes to VA refinancing, VA cash-out loan requirements are more stringent.

If you have a VA loan currently, or if you do not need cash out, the VA Interest Rate Reduction Refinance Loan (IRRRL) is probably a better option.

  VA Cash-Out Refinance VA IRRRL (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 IRRRL, also known as 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.

You wouldn’t even need to show a Certificate of Eligibility for an IRRRL since your existing VA loan proves you’re eligible for the VA home loan benefit.  

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.

Start your VA loan refinance today (Dec 3rd, 2020)

VA cash-out refinance FAQ

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. Either you want to refinance your current VA mortgage and get cash back at closing; or, 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 to 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 home purchase loan, including a home appraisal, credit report, and full documentation. By comparison, a VA Streamline Refinance (IRRRL) 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 Refinance doesn’t require an appraisal — or bank statements, pay stubs, W2s, or tax returns. However, it is only available if you have a VA loan currently and you don’t need cash at closing. 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 the current home 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 they pay a 2.3 percent funding fee, their total loan amount can be up to $102,300.

Veterans and service members 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, including an FHA, USDA or conventional loan with a fixed or adjustable rate. You can use this refi program 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 — or to pay off old credit card debt. 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.” That said, some uses for your cash-out refinance are more advisable than others.

Remember, you’re taking out a new home loan that you’ll have to pay back with interest — likely for 30 years. That’s a very expensive way to finance a temporary event, like a wedding or vacation, or a car that will lose its value quickly.

Using cash-out funds for a purpose like debt consolidation, however, can be very wise. That’s because you can use the lower-interest loan to pay off high-interest credit card debt or personal loans, and save a lot of money in the long run.

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 loan laws that limit cash-out financing to 80 percent loan-to-value. Texas law supersedes the 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 loan officer told me VA was not a good program and I was put into a non-VA loan.

There’s a good chance your loan officer was wrong. They likely should have put you into a VA loan. Other loan programs typically cost more than VA loans, 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. Average VA loan rates are lower than those for a similar conventional or FHA refinance. But remember, rates always depend on the borrower. If someone wants to get a VA loan but has very high debts and low credit, their rate will likely be higher than current average VA rates.

Can a VA cash-out refinance lower my mortgage payments?

Yes, but several other factors also affect the amount of your mortgage payments. For example, refinancing to a shorter loan term could increase your monthly mortgage payments. But you’d be paying less interest over the life of the loan.

If you’re refinancing an existing VA loan simply to reduce your mortgage payments, consider the IRRRL Streamline loan first.

Why are VA loans so good?

Lenders can offer such attractive loans through the VA lending program because the VA provides a guaranty for part of your loan’s value. The lender would be compensated if you couldn’t repay the loan. Conventional loans don’t offer this guaranty, and thus need to charge expensive private mortgage insurance (PMI) to protect lenders from financial loss.

What are today’s VA home loan rates?

Current VA mortgage rates are extremely low. But remember that rates vary a lot between lenders and borrowers. So it’s important to compare a few different offers and find your best deal.

Verify your new rate (Dec 3rd, 2020)

Step by Step Guide

Refinancing a Home