One of the myriad benefits of VA loans is that qualified Veterans with non-VA home mortgages can refinance into a VA loan using a VA Cash-Out refinance.
Conventional to VA Cash-OutThe Cash-Out refinance is one of the VA's two refinance options. The other, the VA Streamline, is an interest rate reduction loan that's available only to those with VA-backed mortgages. By comparison, the Cash-Out refinance is much more involved. In fact, in many ways it mirrors the process for obtaining a VA purchase loan.
How to Refinance into a VA LoanDuring the VA Cash-Out refinance process, prospective borrowers will have to go through standard credit and underwriting procedures. This includes a look at credit scores, debt-to-income ratio, a home appraisal, income verification and other key steps. In addition to meeting these lender requirements, Veterans will also need to ensure they meet the eligibility requirements for a VA loan. Your lender will want to take a look at your Certificate of Eligibility (COE), which only takes a few minutes to get with an experienced VA lender.
One other key factor of refinancing into a VA loan is you must intend to use the home as your primary residence. For example, if you have a vacation home that you want to pull equity out of for home improvements, the cash-out route may not be the right choice for you. This all comes down to the VA’s refinance occupancy requirements . The VA wants to ensure they are financing primary homes for Veterans, not investment ones.A VA Cash-Out refinance isn't a second mortgage or a home equity loan, but actually replaces your current mortgage. Depending on the terms, refinancing may result in higher finance charges over the life of the loan.
Benefits of Refinancing to a VA LoanThere’s a whole slew of benefits that come with refinancing into a VA loan, such as:
Potentially lower interest rate (dependent on market conditions)
No longer paying for mortgage insurance
Access to cash
Disadvantages of Refinancing to a VA LoanAs with anything, there are always cons to consider. Some of the potential disadvantages of using a VA Cash-Out refinance include:
Potentially higher interest rate (dependent on market conditions)
Taking out cash means you’ll owe more money in the long run
Your lender may require you to have significant equity in the home
Note: At Veterans United, the current maximum loan-to-value ratio is 90%.
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