A VA cash-out refinance loan is a type of mortgage refinance option guaranteed by the Department of Veterans Affairs (VA) and provided to eligible veterans and service members who want to access the equity in their home by taking out a larger loan than what they currently owe. The purpose of the VA cash-out refinance loan is to help veterans and service members obtain cash for any purpose, such as home improvements, debt consolidation, or other expenses.

When a veteran or service member applies for a VA cash-out refinance loan, they are essentially refinancing their existing VA-guaranteed mortgage with a new VA-guaranteed mortgage for a larger amount. The difference between the new loan amount, the required closing costs and the outstanding balance on the existing mortgage is paid to the borrower at closing

Unlike a VA streamline refinance loan, a VA cash-out refinance loan requires a home appraisal, income verification, and credit check. The borrower’s credit score and debt-to-income ratio are used to determine eligibility for the loan. Additionally, the borrower must have made all mortgage payments on time for the past 12 months and must certify that they currently occupy the home as their primary residence.

Unless the veteran has been determined to be 10% disabled by the department of Veteran Affairs, a subsequent use funding fee will be applied to the total consideration of the new loan and currently the subsequent funding fee is 3.6% of the amount financed.

The VA cash-out refinance loan can be a useful tool for eligible veterans and service members who want to access the equity in their home for any purpose. However, borrowers should carefully consider the costs and benefits of refinancing before making a decision, as the new loan may have a higher interest rate and monthly payment than their current loan.

The amount of cash that can be received through a VA cash-out refinance loan naturally depends upon the equity in one’s home and the loan-to-value (LTV) ratio. The maximum LTV ratio for a VA cash-out refinance loan is currently 100% of the appraised value of the home.

It’s important to note that VA cash-out refinance loans come with certain requirements and restrictions. The borrower must have an existing VA-guaranteed mortgage and have used their VA entitlement to obtain the original mortgage. Additionally, the borrower must meet credit and income requirements, and the home must meet certain appraisal requirements.

Mortgage interest paid on a VA Cash-Out Refinance loan may be tax-deductible, potentially providing you with a tax benefit.

However, it’s essential to consult with a tax professional to understand the specific tax implications.
While it’s possible to lock a lower interest rate with a Cash-Out Refinance, it’s also possible to end up with a higher interest rate than your current loan, especially if you’re borrowing a significant amount of cash. This could result in higher monthly payments.

By taking cash out of your home, you reduce the equity you have in the property. This can impact your ability to build wealth through home appreciation and could affect your financial stability if the housing market declines. If you refinance into a new 30-year loan term, you may end up paying more interest over the life of the loan, even with a lower interest rate.

The VA Cash-Out Refinance can be a useful financial tool for eligible veterans and service members looking to access their home equity. However, it’s essential to carefully consider the potential benefits and drawbacks, as well as your financial goals and needs, before deciding to pursue this type of refinance.