VA Cash-Out Refinance Loans: How They Work | Pennymac (2024)

FAQs

How hard is it to get a VA cash-out refinance? ›

Requirements for a VA cash-out refinance loan

Meet your lender's minimum credit score requirement, generally 620. Meet your lender's debt-to-income (DTI) ratio requirement, generally no more than 41 percent. Demonstrate proof of income. Pay the VA cash-out refinance funding fee.

VA will guaranty loans up to 100 percent of the value of your home. The Department of Veterans Affairs (VA) Cash-Out Refinance Loan is for homeowners who want to trade equity for cash from their home.

The credit benchmark for a VA Cash-Out refinance is often a 620 minimum. Additional requirements can include: Meeting the VA's service requirements for VA loan eligibility. Certifying that you intend to occupy the property as your primary residence.

Determining whether you qualify: Many cash-out refinance lenders require a credit score of at least 620 and at least 20 percent equity in your home. You might find lenders with looser requirements, but you could pay a higher rate as a result.

The moving parts of a VA cash-out refinance are similar to those of a regular cash-out refinance: You must qualify based on your income, credit and total debt. Your lender orders an appraisal to confirm your home's value. You'll pay off any mortgage balance currently on your home.

“If you have a substantial amount of high-interest debt, need significant cash for a valid reason and are likely to get a lower rate or better loan terms, it can be a good option,” says Shirshikov. “But always consider the costs, the new loan terms and your long-term financial plans.”

A Type 1 cash-out refinance occurs when the loan amount of the new loan is less than or equal to 100 percent of the payoff amount of the loan being refinanced. A Type 2 cash-out refinance occurs when the loan amount of the new loan is greater than 100 percent of the payoff amount of the loan being refinanced.

VA IRRRL eligibility requirements

At least 210 days must have passed since you took out your current VA mortgage. Lenders must check the Credit Alert Interactive Verification Reporting System (CAIVRS) database to confirm you don't have any defaulted federal debt, including: Federal student loans.

You can potentially get denied for a no cash-out refinance or a cash-out refinance depending on the terms of the loan and your financial situation. For example, you typically must have at least 20% in equity in your home to get a cash-out refinance and if you don't your refinance could be denied.

Do you need a downpayment for a cash-out refinance? ›

For a cash-out refi, 20 percent is more the norm. FHA refinances: You'll need 20 percent down to pursue a cash-out refinance, but you can explore rate-and-term and streamlined refis with just 2.25 percent equity.

Expect a cash-out refinance to take 45 to 60 days, but with a little help, you may speed up the processing time. The faster you provide documentation and secure the appraisal, the faster your lender can underwrite and process your loan. It's a team effort to get the cash in hand that you want from your home equity.

Cash-out refinance cons

You owe more: Because you're taking out a larger loan amount, your overall debt load increases. No matter how close you were to paying off your original mortgage, the cash-out raises your debt level.

Typically, you can expect to pay between 2% and 5% of the loan amount. So on a $200,000 home loan refinance, you could pay between $4,000 and $10,000 in closing costs.

For all cash-out refinances paying off an existing VA loan seasoning certification is required. The number of days from closing of loan being refinanced and loan closing of new loan will auto-calculate and cannot be less than 210 (days) or the guaranty will not be issued.

Most mortgage lenders will allow you to refinance up to 100% of your loan-to-value ratio (LTV) in a VA cash-out refinance. However, some will only permit you to borrow a maximum of 90% of your home's appraised value. At Rocket Mortgage, you can cash out 100% of your home's equity with a credit score minimum of 620.