VA Cash-Out Loans Help Lower Payments, Increase Cash Flow
Tap Into Your Home’s Equity
If ever you were considering a VA cash-out refinance, it’s time to get serious. Conditions are perfect for this program. Interest rates have dropped to historic lows into the 3s, while home values have risen rapidly.
With more home equity, chances go up that you can get a low rate and cash in your pocket, possibly even lowering your payment.
Here are factors to consider when deciding on a VA cash-out refinance.
Why Do VA Cash-out Loans Make Sense Now?
As reported by Kiplinger, over the past year, home prices rose in 246 of the 277 cities tracked by Clear Capital, a provider of real estate data and analysis. The biggest gains have been in big cities and regions that took the hardest hits when the housing market collapsed, including Detroit, parts of California, Atlanta, Miami, and Las Vegas.
Realtor.com predicts that home prices will continue to gain 5 percent this year, thanks to low inventory levels, new demand, and people earning more.
That doesn’t even count the rising equity of the past few years. It could be a good time to see how your existing equity may benefit you.
How Does a VA Cash-Out Loan Work?
A cash-out refinance replaces your existing home loan with a bigger loan. It essentially adds on an additional sum, which you get in the form of cash to use however you’d like.
The cash proceeds amount will be rolled into your new mortgage. So it likely won’t affect your monthly budget all that much. Even better, if going through this refinance significantly drops your interest rate, you could even end up paying less than you are now, and have some liquid cash in your pocket.
Of course, all refinances come with a price, and in the case of a VA cash-out, you pay the corresponding VA funding fee.
Cash Out Up To 100% Of Your Home’s Value
The VA cash-out refinance allows eligible borrowers to cash out up to 100 percent of their home’s current value – a huge advantage over non-VA traditional borrowers who can usually only borrow up to 85 percent of their home’s equity.
That being said, you don’t necessarily want to get yourself in a situation in which you end up with little to no equity in your home for no good reason.
Think about what you’ll be using this infusion of cash for, and if it’s something that will give you a return on your investment.
For instance, are you paying off other high interest debt? Funding an education? Making home improvements that will raise your home’s value?
Or are you dealing with an emergency, such as health care costs? The point is, you’ll be paying interest on the cash you take out for up to 30 years, so make it count.
You also should consider where you are in the homeowner journey.
If you’re a fairly new homeowner who hasn’t made significant headway in paying off your mortgage, and are planning to remain in the home for several years, it’s probably a good program to consider.
For those who are deeper into their home payoff, say 20 years into a 30-year mortgage, doing a cash-out refinance can give you access to some money, but the process essentially sets you a few steps back from the ultimate goal of owning your home in full.
Fortunately VA lenders allow 15-year fixed VA cash-out loans to allow borrowers to avoid a full 30-year repayment term.
Qualifying for a VA Cash-Out Loan
Because you’re taking additional cash out, the application for a VA cash-out refinance is a bit more involved than the VA Streamline Refinance, which doesn’t include the extra money payout. For starters, applicants will have to have a home appraisal to assess the home’s value; and, you’ll have to go through an income verification process.
A VA cash-out loan can also replace a traditional or FHA loan, as long as the borrower completes a Certificate of Eligibility (COE) to prove his or her military affiliation or veteran status. This process involves compiling some documentation as well. Fortunately, this site hosts a complete list of VA loan documentation you’ll need.
With conditions being what they are right now, the VA cash-out refinance route is among the most beneficial refinance programs out there if you meet all of the qualifications.
If you have strong income and credit, decent home equity, and can lower your current interest rate, this could be a smart financial move. Add to that the fact that you’ll free up some cash to cover whatever important item you may have on your wishlist, and it’s a win-win.