VA Cash-out Refinance Loans more Popular as Home Equity Increases
Homeowners usually consider refinancing when they want a lower rate and mortgage payment. But there’s a reason to refinance that is gaining in popularity by the day: to get cash-in-hand.
A refinance that allows cash back to the borrower is called a cash-out refinance. When homeowners have equity in their home they can take out a bigger loan than what they owe, and receive the difference in cash.
Home equity increases as the borrower pays down principal each month. Equity also increases with the home value. This is good news for homeowners who have experienced double digit percentage increases over the past few years. According to the National Association of Realtors, home prices rose 8.6% nationwide in the past year. Some areas have experienced even higher appreciation. Atlanta, Georgia home prices rose 23% and Santa Ana, California area values increased 11%. Homes in Houston, Texas are worth 13% more than they were a year ago.
Now that house prices are increasing in cities and towns across the U.S., more homeowners are tapping into that new-found equity to accomplish their financial goals.
VA Cash-out Refinances more Flexible than other Loans
Homeowners with eligible military experience have an even bigger advantage when it comes to cash-out refinancing. Veterans can use the VA cash-out loan to:
- Refinance up to 100% of the home’s value
- Pay off a non-VA loan, such as FHA, conventional, or PMI loan.
- Use the cash for any purpose
- Take advantage of today’s lower rates
- Change the length of the loan
This loan also allows much lower credit scores than other cash out loans. The VA loan must be in good standing, but lenders can often work around previous credit issues.
VA Lenders Examine Cash-out Loans Equally
Homeowners can use the cash back they receive from the refinance for any purpose with no judgment imposed by the lender. VA home loan companies will not “grade” applications harder based on the purpose of the cash. Lenders will approve a home improvement cash-out loan in the same way they would a debt consolidation cash-out loan. Each applicant is examined based on underwriting criteria such as
- Current home value
- Mortgage payment history
- Income and assets
- Credit history
- VA home loan eligibility
Most loans in today’s marketplace are approved by computer underwriting systems. VA cash-out loans are no exception. Employees enter the application information then the computer program analyzes the file and renders a decision. Applicants can be sure they are receiving a non-biased determination no matter what they plan to use the cash for. A few examples of popular cash-out purposes are:
- Consolidate high-interest credit cards
- Pay off auto loans
- Pre-pay college tuition
- Make home improvements
- Invest in the stock market
- Start a retirement fund
There are literally endless purposes for the cash from a VA cash-out loan and they are all legitimate and able to be approved by the VA lender.
Use a VA Cash-out for Better Loan Terms
VA loans allow borrowers receive cash, but they also help get homeowners into a better loan. VA Cash-out loans are often used to eliminate mortgage insurance payments or get into a more stable loan product.
Most VA refinances today are classified as a VA streamline, where a new VA loan replaces an existing VA loan. But the VA cash-out can replace any existing loan type.
Many home buyers opt for an FHA or conventional loan with mortgage insurance, not knowing that they are eligible for VA, or that VA loans require no mortgage insurance. These borrowers can save hundreds of dollars per month by replacing these loans with a VA cash out.
The VA loan can also help homeowners get out of risky mortgage types. Many homeowners today have an adjustable loan, Alt-A, subprime, option ARM, or other loan for which the rate and payment rises with current interest rates. These loans can be eliminated with a fixed-rate VA loan. Instead of worrying about rising payments, VA-eligible homeowners can lock in a 30-year rate and know that they’ll be in an affordable home for years to come.
VA Cash-out Mortgage Rates
Interest rates for all VA loans are very low. VA cash-out refinance applicants often receive a lower rate than they have currently, plus they get cash back when the loan closes. VA loan closing costs are typically recouped quickly when consolidating high-interest debt.
Check your eligibility and find out today’s VA cash-out refinance rates. Chances are your home value has risen over the past year, and you could have access to thousands of dollars through a VA cash-out loan.