VA loans

VA Loan Cash-Out Refinancing Rules

December 8, 2011

VA Loan Cash-Out Refinancing Rules

A reader question came in recently asking about the possibility of getting a VA cash-out refinancing loan for a home that did not currently have a mortgage. In light of that question, here’s some detail on the VA Cash-Out Refinancing Loan program that answers that question and many others.

Borrower Benefits

According to VA literature from the Phoenix Regional VA Loan Center, “You can get cash back and obtain a loan for 100% of the current appraised value” of your home. Qualified borrowers are permitted to get cash out on these refinancing loans even if they don’t have equity in the property, “As long as you do not exceed 100% of the  current appraised value.”

Types Of Loans Eligible To Be Refinanced With VA Cash Out Loans

Qualified borrowers may refinance an existing VA, FHA, or conventional mortgage loan, or “any other additional debt that may exist on the property.”

Occupancy Rules

VA home loan rules require occupancy for most loan products including the VA Cash-Out Refinancing Loan. This type of loan should not be confused with a VA Interest Rate Reduction Refinancing Loan, which requires borrowers to simply certify the property was the primary residence during the original loan.

VA Cash Out Loan Appraisal Rules

The Department of Veterans Affairs requires a new appraisal for cash-out refinancing loans.

Cash Out Rules For Existing Liens

The VA loan rule book requires borrowers to have an existing lien on the property in order to get a VA cash-out loan. Borrowers are permitted to apply for a VA cash out refinancing loan on assumed properties, “As long as you have title to the property you can refinance an assumed loan. Check with your lender as there are some additional regulations concerning assumed loans.” Borrowers may also apply for cash out refinancing loans on “wrap” or Contract For Sale loans, but as with refinancing for loan assumptions, the VA urges borrowers to check with the lender first as there are additional regulations which may apply in these cases.

Cash-Out Refinancing On Properties With Second Liens

According to the Phoenix RLC literature for cash out refinancing loans, “You can pay off any existing liens, as long as new the loan amount does not exceed 100%  of the appraised value of the property.” The same is true for “other debts”.

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  1. Gary

    I purchased a home in Santa Clara California using a jumbo VA 30 fixed loan in April 2013. I easily qualified with 800 credit score histories and low debt to income ratio. I have now put $140K cash and $60K credit cards in remodeling the property with intention of creating high appraisal value and dedicated roommate spaces that will eventually cover all of my mortgage. My plan is to prepare for a 100% LTV VA cash out loan when the county VA limits for my zip code (95051) come out for 2014. I would like the proceeds to repay my cash invested toward remodel and to pay off all associated credit card balances derived from this project. My question is, when trying to get 100% cash out, should I go in with paid off credit cards and my 800+ credit scores or is it best to show the high balances as justification for 100% LTV even though my scores dropped to 720 now because of the new credit card balances? Who should I review this with so I go into December best prepared for a successful application? Thank you for any assistance in preparing for this effort.

    • Joe Wallace

      VA loans, including cash-out refinance loans, examine a borrower's ability to repay including the applicant's debt-to-income ratio. While we can't advise you on a course of action (that's best left to a personal finance expert) we can tell you that for VA loan approval, the debt-to-income issue is very important. If your debt-to-income ratio is at or near 40%, it may be best to work on reducing that ratio before applying. When you are ready to get pre-approved for the refinance loan, you can apply at (a private company and not a government agency).

      • Gary

        The debt to income ratio will be under 35% at time of refinance. That won't be a real issue. What I am concerned about is what is officially "Cash out". I mean, will they more easily give me in cash the difference between my purchase mortgage balance and the limits of VA appraised value for 2014, or will they more easily give "cash out" by paying off secondary debt incurred during the remodel (credit card balances used to buy materials, cash paid from my accounts for labor. All documented.) My question is what does a VA underwriter look at and what is real cash out?

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