The VA cash out refinance is one of the most under utilized VA benefits available for California Veterans. The advantages of using the VA loan program for pulling equity out of your home include being able to borrower up to 100% of your home value, flexibility when it comes to credit and income qualifying compared to other types of financing, and lower interest rates compared to other types of programs. With those advantages over other home loan programs you would think all Veterans would at least compare their VA loan options when considering a cash out refinance. But many Veterans either don’t realize how good the VA loan program is, or don’t realize it is even an option.
Who is Eligible for a VA Cash Out Refinance?
Any California Veteran is most likely eligible for a cash out VA refinance. The loan being refinanced does not need to be a VA loan. As a matter of fact, many Veterans have found over the last few years that because VA allows financing up to 100% of property value with no monthly mortgage insurance, even “rate and term” refinancing from a Conventional or FHA loan into a VA loan can save a lot of money. Even if you have had a VA loan previously, your Entitlement can be restored in most cases so that you can get another VA loan. It is even possible to have more than one VA loan at a time, as long as the new VA loan is on your Primary Residence.
What are the Credit Requirements for a Cash Out VA Refinance?
VA has very flexible credit and FICO score requirements compared to Conventional loan programs. While most California VA lenders will allow a cash out refinance for Veterans with a FICO score over 620, there are some California VA lenders who go allow for the FICO score to be as low as 580. Try that on a Conventional loan 🙂 . Also, VA has a very short wait period after bankruptcy and foreclosure. VA will allow a cash out refinance only two years after a bankruptcy, foreclosure, or short sale. It’s even possible to use a VA cash out refinance to pay off a Chapter 13, as long as the scheduled payments have been made on time and the Chapter 13 bankruptcy has been going for 24 months.
What is the Maximum VA Loan Amount?
There is not a “maximum VA loan amount”. That statement may not sound right to some, but it is true. There is a maximum 100% financing VA loan limit which varies for each county. But it is possible to get a Jumbo VA Loan if your loan amount is higher than the 100% loan limit. The base 100% VA loan limit in 2018 is $453,1100, but there are 25 “high cost” counties in California with 100% VA loan limits higher than $453,100. The highest 100% loan limit in California in 2018 is $679,650. Some of the California counties with the maximum loan 100% loan limit are Orange, Los Angeles, Alameda, Contra Costa, and San Mateo. Jumbo VA loans over $1,000,000 are not unusual.
Typical Reasons for a VA Cash Out Refinance
- Cash out for home improvements – kitchen remodel, windows, room addition, etc
- Cash out for debt consolidation – paying off credit card debt or other installment loans, student loans
- Cash out to pay off HERO Loan/PACE loan for solar panels.
- Cash out for emergency reserves or investment
- Refinance from Conventional loan to VA to lower the interest rate, especially when there is less than 20% equity in the home and the Conventional loan has PMI.
How Difficult is it to Qualify for a Cash Out VA Refinance?
We already discussed the relative flexibility in credit standards. VA is also flexible in allowing a higher debt payments to income ratio than other programs. While Conventional financing caps the debt to income ratio at 45% in most cases, VA does not have a cap. VA is more concerned with the “disposable income”. It is not unusual for VA loans to fund with debt to income ratios higher than 50% or even 55%. Some California VA lenders may have an “overlay requirement” and not allow debt to income ratios over 45% or 50%, so it’s important to work with a California VA lender that follows VA underwriting guidelines as closely as possible.
To learn more about a VA Cash Out refinance, contact a California VA Loan Expert. Working with someone who specializes in VA financing is important because the VA program is unique. Most loan officers don’t understand many aspects of the VA loan program and may even talk a Veteran out of using the program because of their lack of knowledge. Don’t let that happen to you. Find out how you can benefit from a VA cash out refinance.
*Updated Jan 22, 2018 for new loan limits.
Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.