It is possible to use VA financing to pull cash out up to 100% of the properties value. And while this may be true according to “VA Guidelines”, it’s not true with most lenders. Most lenders only allow a refinance of a VA loan to 90% of the properties value. First, it’s important to mention that there are different types of refinancing when it comes to VA.
VA Refinancing Types
The most commonly know VA refinance is the “IRRRL”, or Interest Rate Reduction Refinance Loan. The IRRRL is strictly a VA to VA refinance. There is no “cash out”. The program is extremely easy since there is not income documentation or qualifying required and no appraisal. In many cases the VA IRRRL is closed as a “no cost” refinance, lowering the rate and/or payment for the Veteran when rates have improved.
The other type of refinance is a non-VA to VA refinance. In the eye’s of VA, any non-VA to VA refinance is considered a “cashout” refinance, even if the borrower will not receive cash at closing. And although VA allows a non-VA to VA refinance to go as high as 100% of the appraised value, many lenders cap it at 90%. This is where working with a lender who truly specializes in VA can provide better options. There are a few VA lenders who will allow not only a non-VA to VA refinance to go to 100% loan to value, but will even allow “cash out” at 100% loan to value. For a Veteran who is either consolidating debt, or just trying to get enough funds for home improvements, being able to refinance to 100% of the property value can provide 10’s of thousands more dollars.
VA Cashout Refinance
Let’s assume a California Veteran who has a Conventional loan (although is could even be an FHA, CalVet, or other type of loan) of $350,000 on a home worth $400,000 is looking to pull enough cash out to remodel their kitchen and make a few other minor improvements on their home. Most lenders who max out at 90% of the property value would only allow $10,000 cash out. (90% of $400,000 is $360,000, which is only $10,000 higher than what the Veteran already owes. $10,000 cash out also assumes there are no closing costs on the loan.) A lender who allows cash out to 100% of the property value would lend $400,000, resulting in $50,000 cash out.
If you are considering a VA refinance it is important that you work with a VA loan specialist who is very familiar with the VA loan program. The VA loan officer should be able to provide custom loan scenarios showing the new loan amount, payment, closing costs and any potential lender credit to offset the closing costs, the the bottom line estimate of cash going to the borrower at closing.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. 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.