6 Reasons to Do a Cash-Out Refinance
When people say your home is one of your greatest assets, they are referring to the built-in equity developed over time that increases the value of your property. The equity from a house can be borrowed against, giving homeowners the opportunity to make larger-ticket purchases or to consolidate debt. Whatever your reason for wanting one, a cash-out refinance offers numerous benefits for veterans and active-duty service members and their families.
What Is a Cash-Out Refinance?
As mentioned, a cash-out refinance is funded by the equity built into a home. With a cash-out refinance, homeowners can take out a new home loan for more than the balance owed. This could total 80–90% of your home’s gained equity in cash. A cash-out refinance is a popular borrowing option for homeowners, as it comes with lower rates than credit cards or personal loans. Homeowners whose homes have increased in value sometimes consider a home equity loan or HELOC to achieve a goal similar to a cash-out refinance. However, cash-out loans typically have lower rates.
Who Is Eligible for a VA Cash-Out Refinance?
There are certain criteria to qualify for a VA cash-out refinance loan.
- Certificate of Eligibility (COE). This document is a certificate verified by the U.S. Department of Veterans Affairs that tells lenders that you meet the military service or surviving spouse requirements to get a VA home loan. The quickest way to get a VA COE is usually to ask a VA-approved lender to obtain it for you.
- Credit Score. VA lenders are often looking for a credit score of at least 640, but minimums can differ based on the lender, the loan amount, and more.
- Loan-to-Value Ratio. Your lender will use this tool to assess the risk of the loan. Eligible military borrowers may tap up to 90% of their home’s value with a VA loan.
- Debt-to-Income Ratio. This tells your lender how much you owe each month versus how much you earn. Homeowners interested in a cash-out refinance typically need to have a debt-to-income ratio of 50% or less.
- Primary Occupant. The person applying for the loan must certify that they intend to occupy the property being refinanced.
How Can a Cash-Out Refinance Put You In a Better Position?
There are a few major ways a cash-out refinance can benefit you financially. Here are some examples:
- Pay off large debts. Applying the equity built into your home to consolidate your outstanding debts can result in less money going to bills each month, since mortgages typically have lower interest rates than non-mortgage loans.
- Refinance from a non-VA loan Into a VA-backed loan. A portion of VA loans are guaranteed by the federal government, making them less risky for lenders. As a result, lenders can offer veterans and active-duty military service members better rates and terms on their loans. An additional advantage of switching to a VA-backed loan is getting rid of private mortgage insurance (PMI), typically lowering your monthly payments.
- Refinance into a loan with a lower rate. Getting a cash-out refinance may allow you to secure a lower interest rate, which would likely reduce your overall monthly payment. This is only true if the interest rate on the initial loan was higher, so look out for that.
- Refinance into a better term. With a cash-out refinance, homeowners can choose between a fixed-rate or adjustable-rate mortgage (ARM). ARMs usually have more favorable terms during the initial period. Once the initial period expires, however, the rate fluctuates up or down depending on market conditions. On the other hand, fixed rates offer more predictability over the life of the loan, with an interest that is paid over a steady, consistent rate.
- Pay for home improvement projects. Not only can repairs and improvements help make a home more comfortable, but they may also increase your home’s value.
- Invest in you (and your family’s) wellbeing. Large-ticket expenses such as weddings, college tuition, and even that dream family vacation can be covered by a cash-out refinance.
The perks of a refinance option that lets you take cash out of your home are only limited to your imagination. VA loans still require payment on other expenses like appraisal fees, credit report fees, and title fees, in addition to closing costs and the VA funding fee. Be mindful of these expenses when making a decision to apply for a cash-out refinance. It is also worth noting that both closing costs and the VA funding fee can be financed if the borrower meets the lender’s loan-to-value guidelines.
How Can Hero Loan Help?
Hero Loan was created to give our veterans and active-duty service members the specialized attention they deserve when it comes to doing a refinance with cash out. We provide each of our veterans with a personalized lending experience through our friendly loan experts. Our face-to-face approach ensures that the needs of active-duty military and veteran homebuyers are met with outstanding customer service.
Our veterans are our heroes. They give so much to us. That is why we choose to give back through the Fisher House Foundation, a community project that builds homes for military and veteran families to stay free of charge while a loved one is in the hospital.
Not only do we have an outstanding team of caring professionals, but we are also able to close on loans quickly. Our streamlined services allow for underwriting and other processes to be completed in house. Our goal is to reduce the stress of filling out paperwork, giving you the bandwidth to focus on what matters most. See how we can get you approved for a loan in five minutes or less to begin your cash-out refinance process!
Our veterans deserve an expert lending service they can trust. Give us a call at (866) 222-0219 to speak with a VA loan representative who will be glad to address any questions and guide you through the process. Or, reach out to us online through our live chat option today!