Looking to Consolidate Debt? Try VA’s Cash-out Refinance.

To refinance and consolidate existing debts at the same time, such is the main goal of a VA cash-out refinance. Although other than debt consolidation, you can use the cash to fund your child’s education or spend on home improvements. VA’s cash-out refinance is not exclusive to current VA homeowners because non-VA borrowers can use this to replace their old mortgages with new VA ones.

Introducing VA Cash-out Refinance

VA streamline refinance or IRRRL prohibits homeowners taking cash out of the transaction. This is something that VA cash-out refinance allows: borrowers pocketing cash for whatever acceptable purpose.

But like any other VA loans, cash-out refinances are made by VA-approved lenders. The VA will guarantee these loans that lenders approve based on their own underwriting standards on top of VA guidelines. These so-called lender overlays account for differing credit score, DTI and other requirements from lender to lender.

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The defining attributes of a VA cash-out refinance are:

  1. Lien status. The loan must secured by a first lien on the property to be refinanced.
  2. Maximum loan amount. You can borrow up to 100% of the appraised value of the home, plus costs of any energy efficient mortgage and the VA funding fee.
  3. Closing costs. The cash you take out of the loan can be used to pay allowable discount points, fees and charges.
  4. Maximum guaranty. The VA’s guaranty on a VA cash-out refinance can be up to the value of the home, calculated just like a VA purchase loan.
  5. Entitlement. To do a cash-out refinance, you must have sufficient entitlement. If this entitlement has been used when you originally took out the VA purchase loan, it can be restored.
  6. Occupancy. You or your co-borrowers must certify to the VA that you’ll occupy the home as your principal residence.

Is It Practical To Do a VA Cash-out Refinance?

Any discussion of VA cash-out refinance loans is not without a comparison with VA streamline loans. The VA streamline program is known for its ease and speed when refinancing. No appraisal, no credit check and no income documentation are some of its perks.

Meanwhile, we have the cash-out program that provides homeowners an option to pay off their existing mortgage debt and other higher-interest rate debts using one’s home equity. You can get rid of credit card debts this way and focus on making a single monthly payment via your mortgage that has a lower rate.

This simplifies your life and makes budgeting easier, too. Now here are things to consider.

Because of the cash involved on top of your mortgage debt, lenders are stricter with cash-out refi loans. This means full credit information and underwriting, appraisal and income documentation.

Cash-out refinance loans can be paid up to 30 years. It’s basically stretching out the repayment of an unsecured debt to many years. In line with that, you are putting your home as collateral.

Consider these risks along with the perks when you decide to get a VA cash-out refinance.

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