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VA Cash-Out Refinance: How To Cash Out Your Home Equity With A VA Loan

4-Minute Read
Published on November 22, 2021

A VA cash-out refinance replaces your current mortgage with a new VA home loan. If you’re eligible for a VA loan and looking to utilize your home equity to take cash out for any reason, you can get a loan for up to 100% of the appraised value of your house in many cases. You also have the option to refinance a non-VA loan into a VA-backed loan, which is likely to have better terms than a conventional loan.

Find out if you’re eligible and what it means to cash-out refinance with a VA loan.

When Is A VA Cash-Out Refinance A Good Idea?

If you know your current home appraisal value, you likely already know how much you can cash out on your house. This is great for homeowners who need a little extra money for home improvements and repairs, debt consolidation, a college or retirement fund and other financial needs.

You may also be able to get better loan terms if you refinance your FHA or conventional loan into a VA loan. This includes lower interest rates, lower monthly mortgage payments and even eliminating mortgage insurance fees. The ability to fully utilize your home equity to convert it to cash is just one of the numerous features a VA loan offers eligible active-duty service members, veterans and their families. We’ll talk about another one as well.

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How Does A VA Cash-Out Refinance Work?

VA loans are backed by the federal government, which lowers the risk for the lender, allowing for better loan terms. The process to get a VA cash-out loan is not much different from applying to refinance for any other loans. You’ll shop around for the best terms before choosing a lender, and then you’ll submit a loan application.

Eligibility Requirements

In order to unlock the VA loan benefits, you’ll need to show your lender a Department of Veteran Affairs Certificate of Eligibility (COE), which essentially confirms that you’ve met the following requirements to qualify for the loan:

  • If you had 181 days of service during peacetime.
  • If you had 90 days of service during wartime.
  • If you had 6 years of creditable service in the Reserves or National Guard or at least 90 days under Title 32, with at least 30 days being consecutive.
  • Service time requirements don't apply if you've been discharged by reason of service-connected disability.
  • If you are the surviving spouse of a service member who died in the line of duty.

Your COE is crucial to qualify for the VA loan benefits. Additionally, in order to qualify to convert all of your equity into cash, the lowest median FICO® Score of all clients on the loan can be no lower than 620. So, if you have a median FICO® Score of 720 but your spouse has a median credit score of 670, you wouldn't be able to take out your full equity amount with both names on the application.

Cash-Out Limits And Restrictions

Until recently, Rocket Mortgage® clients had to leave 10% equity in their homes when doing a VA cash-out refinance. You no longer need to leave 10% equity in your home if your credit score median is 620 or higher and you’re using a VA loan to take cash out. While having the ability to convert 100% of your home’s value into cash can give you increased financial flexibility, there are some restrictions you should know about.

Although the VA itself doesn't have loan limits, many lenders use conforming loan limits as a guideline. The conforming loan limit for 1-unit properties across most of the country is $647,200, but it may be higher if you have more units or live in a high-cost area.

Other than those restrictions, all the usual VA loan guidelines apply. If you’re getting a fixed mortgage, your debt-to-income (DTI) ratio – a measure of your monthly debt payments compared to your monthly income – should be no higher than 60%. For adjustable rate mortgages (ARMs), this limit is 50%.

VA Funding Fee

Don’t be surprised to make it through the loan application process and see a VA funding fee at closing. According to the Department of Veterans Affairs, the fee is meant “to lower the cost of the loan for U.S. taxpayers.”

While the VA funding fee can often be rolled into your mortgage, you are responsible for paying the closing costs when you close on a VA cash-out refinance. Check with your lender to determine exactly how much you owe at closing.

VA Cash-Out Refinance Rates

VA mortgage rates tend to be lower than conventional or FHA loan products because VA cash-out loans are considered less risky for lenders. However, your refinance rate can depend on other factors of your personal finances. Your credit score and property value often play a role in the rates you’re offered.

Stay updated on current cash-out refinance rates and compare different VA lenders to see which one will offer the lowest cash-out refi rates to meet your financial needs.

The Cash-Out Refinance Alternative: VA Streamline Refinance

If you’re looking to lower your rate, change your term or both, it could be worth your time to look into a VA Streamline Refinance. You may also see this referred to as an interest rate reduction refinance loan (IRRRL) or Earl.

The first major benefit of these loans is that you can refinance to lower your rate or change your term even if you owe more on your home than it’s worth. You can get a VA Streamline loan amount for up to 120% of your home’s current value. If you’re currently a Rocket Mortgage® client, you can do this with a median FICO® Score as low as 620.

The other big benefit of the IRRRL is the reduced VA funding fee. Instead of a monthly mortgage insurance charge, VA loans have a one-time funding fee that may be paid up front or built into the loan. On Streamlines, this fee is only 0.5% of the overall loan amount.

As with all VA loans, the funding fee on Streamlines can be waived if you’re receiving VA disability or are applying as a surviving spouse of a veteran who died while in service or as a result of a service-related disability. If you're a Purple Heart recipient serving in an active-duty capacity, you're also exempt from the funding fee.

The Bottom Line

Taking out a VA cash-out loan is a great option if you plan to use the money to improve your financial circumstances, like by renovating your home or advancing your education. Remember, refinancing resets the clock on your loan term, so you may be looking at a 30-year loan.

If you have any interest in a cash-out refinance loan or VA Streamline, we can certainly help. You can apply for a full refinance approval online through Rocket Mortgage or give one of our Home Loan Experts a ring at (800) 785-4788.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.