As a veteran, active service military member or surviving spouse, you likely know the United States Department of Veterans Affairs (VA) offers home financing options with advantages you can’t get anywhere else for those who qualify. If you already have a VA loan and are thinking about refinancing or want to learn more about a refinancing option for the future, a VA cash-out refinance may work for you.
Discover how this type of loan works and why you might want to apply for one.
How Does a VA Cash-Out Refi Work?
A VA cash-out refinance allows eligible borrowers to tap into their home equity in the form of money to use for a variety of needs. This option would allow you to replace your current loan with a new, larger mortgage with new terms, and you’d receive the difference in cash. In addition, these types of loans are backed by the government, meaning that loan terms and requirements may be more favorable than other types of loans.
In addition, it’s not necessary to already have a VA loan to apply for a VA cash-out refinance. However, you must meet service requirements, provide a Certificate of Eligibility (COE) and meet any minimum requirements that your lender has established. Be aware that you must also pay the VA funding fee.
Why Might You Want a VA Cash-Out Refi?
There are many advantages to getting a VA cash-out refinance. Here are some of the most common amongst borrowers.
Debt Consolidation
If you have multiple debts or high-interest debt, you may want to consider a VA cash-out refinance to help pay it down. Interest rates for these types of loans are typically lower than other types of debt, such as for credit cards. Currently, credit card interest rates average at about 24% in the United States. Using a VA cash-out refi in this way could help you save money on interest.
Home Improvement
Many borrowers take advantage of a VA cash-out refinance and put it back into their home through different types of projects. Updating a kitchen or bathroom, installing smart systems and replacing windows or roofing have the potential to increase your home’s market value. If and when you’re ready to sell your home in the future, you may be able to sell it for more of a profit.
Large Purchase
Some borrowers use the funds from a VA cash-out refinance to put towards a big necessary purchase, such as a new, more reliable car, large scale remodels that could increase your home’s value and more.
Education
Higher education can be costly. If you or a loved one has tuition that still needs to be paid, tapping into the home equity you’ve already built could be a more viable solution than other types of loans.
Change Loan Terms
As mentioned previously, you don’t have to have a VA loan to apply for a VA cash-out refinance. You may want to change your current loan to a VA-backed option for more favorable terms, such as converting an adjustable-rate mortgage to a fixed-rate mortgage or securing a lower interest rate than when you got your original mortgage.
Other Loan Options
VA cash-out refinances may not work for everyone. If you think it may not be the best option for you or if you want to learn a bit more about your other options before you make your final decision, check out some of these products.
VA Streamline Refinance
Those who already have a VA loan may be able to get a VA streamline refinance, also known as a VA interest rate reduction refinance loan (IRRRL). This type of loan allows eligible borrowers to move through the refinance process with less paperwork, often resulting in a faster transaction.
Home Equity Loan
Home equity loans allow you to tap into the equity you’ve built up in your home and receive it in a lump sum at closing. Keep in mind that this type of loan uses your home as collateral so if you’re unable to make payments, your living situation may be at risk.
Home Equity Line of Credit (HELOC)
Instead of a loan to tap into your home equity, another option is to use a line of credit. A HELOC works much like a credit card: you can withdraw money up to a certain amount over a set period of time, during which you’d only pay interest on money you borrowed then pay back the whole balance during the repayment period.
Tap into Your Advantages
By tapping into your home equity and your advantages as an eligible VA borrower, you may find that the refinance process is more manageable than you may have perceived. Don’t forget that you have resources within the VA website, and a lender experienced with VA loans would be able to help you navigate your options.
This article is intended for general informational and educational purposes only and should not be construed as financial or tax advice. For more information on financial planning or investment advice, consult a registered investment advisor or financial planner.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
