Unlocking Home Equity: A Comprehensive Guide to VA Cash-Out Refinancing

Homeowners who have served in the military and built up equity in their homes may be eligible for a VA cash-out refinance. This home refinance option allows you to qualify for a new VA-backed mortgage loan and cash out some of your equity as part of the new loan agreement. If you're interested in a VA home loan cash-out refinance, here's what you need to know.

What is a VA Cash-Out Refinance?

A VA loan cash-out refinance allows a homeowner to replace their current mortgage with a new loan with different terms. Typically, you will only refinance your mortgage if you qualify for better terms with a rate-and-term refinance or access equity in your home through a cash-out refinance. If you choose a cash-out refinance, you take out a new home loan for a larger amount than your existing loan and then receive the difference in cash.

VA loans are offered by private mortgage lenders but backed by the U.S. Department of Veterans Affairs. This means lenders take on less risk and can offer lower mortgage rates than with conventional loans. You can qualify for a VA cash-out refinance if you already have a VA loan or meet the VA’s military service requirements to qualify for a VA loan.

Who is Eligible for a VA Cash-Out Refi?

There are strict eligibility criteria for VA loans since they are limited to military service members. Specifically, only the following types of borrowers may be eligible for a VA cash-out refinance loan:

• Military veterans
• Active-duty service members
• Reservists and National Guard members called to active duty
• Reservists and National Guard members who have performed six years of creditable service
• Some surviving spouses

In all cases, military service members must meet the requirements for length of service and must have been discharged under any conditions other than dishonorable. VA cash-out refinancing is available to any borrower who meets the military service requirements, whether or not they already have a VA mortgage for their home. However, a VA loan cash-out refinance is only available for a currently occupied primary residence. You cannot get a VA cash-out refinance for a second home or investment property.

Beyond the military service requirement, specific lending requirements will vary from one VA lender to the next. Most mortgage lenders have requirements for a minimum credit score, a minimum amount of home equity, an acceptable debt-to-income ratio (DTI), and proof of income.

How Much Does a VA Cash-Out Refinance Cost?

Though VA loans are typically less expensive than conventional loans, your VA-backed cash-out refinance will still have various costs. The specific loan terms, rates, and fees will vary depending on the lender. This is why it’s a good idea to get quotes from several mortgage lenders to find the right cash-out refinancing loan for your budget.

Many VA borrowers will also have to pay the VA funding fee, which is similar to mortgage insurance. The fee amount depends on whether the loan is your first