VA Cash-Out Refinance: Access More Home Equity

If you want to get cash in hand to help pay for home improvements, consolidate high-interest debts or cover other financial expenses, a VA cash-out refinance loan may be what you’re looking for. A VA cash-out refinance offers additional benefits compared to FHA and conventional loan refinance options.

A VA refinance is available to veterans, active duty service members, Reserve and National Guard members, and surviving military spouses. You don’t need to currently have a VA loan to qualify — you can refinance any type of mortgage into a VA loan under different terms.

What is a VA cash-out loan?

A VA cash-out refinance loan is a type of refi loan backed by the U.S. Department of Veterans Affairs (VA) that allows eligible homeowners to take cash out of their home equity by replacing their current mortgage with a VA-backed loan that has a new interest rate, terms or both. Zillow makes it simple to find a lender for a cash-out refinance, get started today.

If you’re looking to refinance an existing VA loan and don’t need cash back, you may consider a VA Streamline Refinance (IRRRL).

How does a VA cash-out work?

In a VA cash-out refinance, you pay off your existing mortgage loan with a new, larger loan that lets you withdraw a sum of cash from your equity, changing the interest rate, term, or both in the process. What makes a VA cash-out refinance different from a standard rate-and-term refinance is that you’ll be able to withdraw some of your home’s existing equity in cash.

How much cash back can you get?

The amount of cash available to you will depend on two variables: the amount you still owe on your existing mortgage and your home’s current worth (also known as your home equity). VA cash-out refinances are unique in that you can generally borrow up to 90% of your home’s equity. This is a higher amount than most other cash-out refinance types, which top out at 80%. Some lenders even allow you to take 100% of your equity, if certain conditions are met.

Here’s an example. Let’s say you owe $200,000 on your existing mortgage and your home is valued at $500,000. A 90% loan-to-value ratio (LTV) on a home valued at $500,000 would equal a $450,000 loan. That means that with a VA cash-out refinance, you could get $450,000 minus your outstanding loan balance of $200,000 — netting you $250,000 in cash.

Are you eligible for a VA cash-out?

The VA has minimum active-duty service requirements that must be met in order to be eligible for a VA cash-out refinance loan. Service requirements vary based on when you served and the amount of time you served in the U.S. Military (whether as a Veteran, active-duty personnel, Reserve member or National Guard member). Apply for a Certificate of Eligibility (COE) to see if you’re eligible for a VA cash-out refinance.

In addition to proving your eligibility, the VA and your lender will have a few requirements you must meet to qualify.

• You must currently live in the home you’re refinancing with the loan.
• You must meet your lender’s minimum credit score requirements (usually a score of 620 is required).
• You must have a stable income and employment.
• You must meet your lender’s debt-to-income ratio (DTI) requirements (usually lenders allow up to 70% DTI).

How to get a VA cash-out loan

Like any refinance, a VA cash-out refinance requires a few important steps. Here is the general process to follow.

1. Find a VA lender: Find a mortgage lender or bank that offers VA cash-out refinances. Once you identify a few, compare and contrast until you find a lender with the best rate and terms — they can vary by lender.

2. Apply for a VA Certificate of Eligibility (COE): To show your lender that you qualify based on your military service history and status, apply for a COE. This can be done on the VA website or through your lender.

3. Start the loan application: Work with your lender to complete your loan application, providing all required information and documentation. In addition to your COE, you’ll need to show proof of employment and sufficient income to cover the new monthly payment.

4. Get a new home appraisal: Lenders typically require a home appraisal to ensure you have a sufficient amount of equity in your home. Get an estimate of your home’s worth with the Zestimate as a first step before paying for the appraisal.

5. Complete the closing process: Most VA cash-out refinances take between 45 and 60 days to close, but the process and timeline can vary by lender. Refinancing means you’ll also need to pay closing costs and fees on the new loan, which can range between 1% and 5% of the loan amount.

How VA cash-out compares to other cash-out refinance loans

There are three types of cash-out refinance options: VA, FHA and Conventional. VA cash-out refinance loans typically offer lower interest rates over the life of the loan, since they do not require private mortgage insurance (PMI). Conventional cash-out refinance loans often have lower closing costs.

Here is a quick general comparison chart to help guide you in your decision. Remember, you can always ask a lender or mortgage broker for help when comparing refinance loans.

VA cash-out refinance vs IRRRL

Both a VA cash-out refinance and VA Interest Rate Reduction Refinance Loan (IRRRL) are refinancing options available to eligible military service members. However, the loans are fairly different. An IRRRL, or streamline refinance, allows you to refinance a property to secure a lower interest rate or move from an adjustable rate to a fixed rate. An IRRRL is a faster and more affordable path to refinancing, but unlike a VA cash-out refinance you aren’t able to withdraw cash from your home’s equity. At most, you can withdraw $6,000 to use for energy efficiency improvements to your home.

Why might I get a VA cash-out refinance?

Homeowners who qualify for VA cash-out refinance generally choose this type of refinance for the extra cash. You can use the cash back however you see fit. Most homeowners choose to consolidate or pay off high-interest debt, make home improvements or repairs, pay for higher education, or just liquidate some of their home equity into cash for flexibility in case of an emergency.

Should I get a VA cash-out refinance?

A VA cash-out refinance is a great option for qualifying homeowners who want to access some of the equity in their home without selling. Still on the fence? Take these steps to help you decide:

Compare current rates

Interest rates are a crucial factor in deciding whether it’s the right time to do a refinance. Each lender sets their own rates for VA loans following the VA’s lender guidelines, but interest rates are also influenced by your credit score, loan type, loan term, repayment history and market conditions.

When comparing rates from multiple lenders, look at the annual percentage rate (APR), which combines the interest rate and lender fees. This can be a more accurate way to compare loans. With VA loans, lenders aren’t allowed to charge more than 1% of the loan amount in origination fees. With the average rate on a VA cash-out refinance around 3.08% (according to the 2020 Home Mortgage Disclosure Act), that would put your total APR around 4.08%. View current VA cash-out refinance rates for the most accurate comparison.

Plan for closing costs and fees

Expect to pay between 1% and 5% of the loan amount in closing costs on a VA cash-out refinance. Unlike an FHA or conventional cash-out refinance, a VA cash-out refinance also requires a one-time funding fee. The funding fee is either 2.3% of the loan amount if you’re using the VA loan program for the first time, or 3.6% if you’ve used the benefit before. Some veterans with a service-connected disability may be exempt from paying a funding fee. Like most types of refinancing, a VA cash-out refinance allows you to finance your closing costs and funding fee into your new loan balance. Talk to a lender to learn how and start the pre-qualification process.

To learn more about refinancing or VA loan eligibility and requirements, visit our Mortgage Learning Center.