What Is a VA Cash-Out Refinance?
A VA cash-out refinance replaces your existing mortgage with a new, larger VA loan — and gives you the difference in cash. It’s commonly used by veterans who want to use their home’s equity for something useful.
Top Benefits
- Cash Access: Get money from your home’s equity to pay for emergencies, renovations, or other major expenses.
- Lower Interest Rate: If your original loan had a higher rate, this refinance could reduce your monthly payment.
- Stability: Switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan for predictable payments.
Key Requirements
To qualify, you must meet certain VA and lender requirements:
- Credit Score: Typically 620 or above.
- Debt-to-Income Ratio: Usually capped at 41%.
- Occupancy: You must live in the home as your primary residence.
- Loan History: At least 6 on-time payments and a minimum of 210 days since your first payment.
Loan-to-Value (LTV) Limits
- VA Max: 100%
- Typical Lender Limit: 90%
- You can roll the VA funding fee into your loan, but keep an eye on that LTV cap.
What Will It Cost?
- Closing Costs: Usually 3–5% of the loan amount.
- VA Funding Fee:
- 2.15% for first-time users
- 3.3% for repeat use
You can include the funding fee in the total loan amount, reducing out-of-pocket expenses.
- 2.15% for first-time users
Is It Worth It?
Use this simple break-even formula:
Closing Costs ÷ Monthly Savings = Months to Break Even
If you plan to stay in your home beyond that point, it could be worth it.
Comparing Loan Options
- VA Cash-Out vs. Streamline (IRRRL): Streamline doesn’t offer cash and has fewer rules. Cash-out gives you money but requires full qualification.
- Cash-Out vs. HELOC: A HELOC adds a second loan. Cash-out gives you one mortgage and one payment — often with better terms.
Impact on Your VA Entitlement
Cash-out refinance uses up more of your VA loan benefit (entitlement). However, it also pays off your current loan, which can help restore some entitlement.
Red Flags to Watch
- Misleading Ads: “No closing costs” often means they’re baked into the loan.
- Unsolicited Offers: Be wary of flashy mailers. Always verify with a VA loan specialist.
Smart Ways to Use Your Cash
- Home Improvements that increase value
- Debt Consolidation to lower interest costs
- Emergency Expenses — only when truly needed
Final Thoughts
A VA cash-out refinance can be a powerful financial tool — but only when used wisely. Take the time to compare offers, understand the costs, and talk to a VA loan expert. Don’t just chase cash — aim for long-term financial health.