VA cash-out refinance

The VA cash-out refinance is a type of mortgage refinancing program specifically for military members, veterans and spouses. A VA cash-refinance lets you tap into your home’s equity and potentially secure a lower rate at the same time. But it’s not free: You still need to pay closing costs and the VA Funding Fee.
Here’s a closer look at how the VA cash-out refinance works, who qualifies and how to apply.

What is a VA cash-out refinance?

A VA cash-out refinance is a refinancing program that allows you to refinance any type of mortgage — not just VA loans — with a new VA-backed loan for an amount that’s greater than the old loan. The difference between the old and new loan is the “cash out” portion, which can be used for any purpose.
You may qualify for the program if you’re:

• A veteran.
• An active Servicemember.
• A Reserve and National Guard member.
• A current Reserve and Guard member with at least six years of creditable service.
• An eligible surviving spouse.

To learn more about how VA loans work and if you might qualify, see our guide on VA loans.

Benefits of doing a VA cash-out refinance

VA loans have benefits you won’t find with other types of loans. Along with offering competitive interest rates, VA loans:

• Don’t require private mortgage insurance even if your home’s equity is below 20%.
• Limit your lender’s underwriting costs to 1% of the loan amount.
• Accept borrowers with foreclosure or bankruptcy in their history.
• Can be used multiple times by the same borrower.

With a VA cash-out refinance, you can refinance any type of loan to a VA loan — you don’t need to already have a VA loan to qualify for the program.

VA cash-out refinance fees and costs

As with traditional mortgage refinancing, you’ll pay closing costs and fees with a VA mortgage refinance. You’ll also be on the hook for the VA Funding Fee, which is unique to the VA mortgage program.
Be prepared to pay:

• Closing costs. Closing costs vary by state, but they typically range between 2% and 5% of your loan’s total amount.
• VA Funding Fee. A standard fee charged on VA loans to help reduce the cost of the program. The fee is between 2.3% and 3.6%, depending on the particulars of your loan.

However, if you meet your lender’s loan-to-value requirements, these costs can often be rolled into your mortgage so you don’t need to pay them upfront.

Guidelines for 2023

While guidelines vary by lender, here’s a list of the general requirements to get a VA cash-out refinance:

• Sufficient equity in your home (at least 15% to 20%).
• Credit score of 620 or higher.
• A debt-to-income (DTI) ratio of 50% or less.
• Certificate of Eligibility (COE).
• Current mortgage statement.
• Proof of income.
• Home appraisal.

Keep in mind that every lender is different, and you may be asked to provide additional information and documents during the underwriting process.

Rates and terms

VA loans are available in 15-year and 30-year terms. As of June 2022, interest rates for VA cash-out refinances are sitting between the low 5% range to the high 6% range, depending on your credit score. Here’s a breakdown of typical mortgage rates by credit score.
Mortgage APRs (June 2022)

How to get a VA cash-out refinance in 4 steps

Here are four steps to get a VA cash-out refinance:

1. Find a lender. Search and compare VA lenders to find the best rates and terms for your VA cash-out refinance. Lenders that may offer VA loans include banks, credit unions and online lenders.
2. Get your Certificate of Eligibility (COE). Your lender will require this document to determine your eligibility for your VA cash-out refinance. How to request and obtain your COE.
3. Provide documents to your lender. At a minimum, your lender will need to see your current mortgage statement, pay stubs for the last 30 days and W-2 forms and tax returns for the past two years.
4. Wait for the loan to close. Once your documents are in, the underwriting and closing process can take anywhere from 30 to 45 days. At closing, you may be required to pay applicable closing costs and the VA Funding Fee.

When to apply

Examples of when VA cash-out refinance loan may make good financial sense are when you:

• Want cash out and you can secure a lower rate at the same time.
• Want to lower your monthly payment with a lower interest rate.
• Want to get rid of private mortgage insurance (PMI) on a conventional loan.
• Plan on staying in the home long enough to recoup your refinancing costs.

But if you’re just after cash from your equity, a VA cash-out refinance mortgage isn’t necessary for you to achieve this. You can access your home’s equity with a home equity loan, a HELOC or conventional mortgage refinance instead.
Home equity loans and HELOCs can be significantly cheaper than a refinance, since many lenders don’t charge closing costs and only minimal fees. And choosing a conventional refinance over a VA refinance means you don’t have to pay the VA Funding Fee.

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VA interest rate reduction refinance loan (IRRRL) vs. cash-out refinance

You may have heard of VA interest rate reduction refinance loan (IRRRL), aka the “VA streamline refinance.” While both the IRRRL and VA cash-out refinance program are both refinancing programs, there are some important differences:

9 alternatives to VA cash-out refinance

A VA cash-out isn’t the only option to secure a lower rate or access cash for a range of needs, including debt consolidation, home improvements or education. Here are nine alternatives:

1. Home equity loan. This option lets you borrow against the equity in your home with a one-time, lump-sum payment and even monthly repayments over a five- to 30-year term. Closing costs and fees are much less for this type of loan than a mortgage refinance. Compare home equity loans for different financial situations.
2. Home equity line of credit (HELOC). Lets you borrow against the equity in your home with a revolving line of credit that you can use as you need and pay off early. Many HELOCs come with no closing costs and low maintenance fees. Compare HELOCs to find the best rates.
3. Conventional mortgage refinance. A conventional mortgage refinance might make more sense than a VA refinance if you have 20% equity built up in your home. With this option, you can get rid of PMI and won’t have to pay the VA Funding Fee, saving you money.
4. VA-HAMP. This stands for VA-Home Affordable Modification Program and is for VA homeowners in financial distress. It allows VA borrowers to modify their VA loans to reduce monthly mortgage payments and avoid foreclosure.
5. Home equity sharing. A lender gives you a percentage of your home’s value in cash with no payments required for a set term. At the end of the term, you must pay back the loan with appreciation, if any. One lender that offers home equity sharing is Hometap, but it comes with risks.
6. Personal loans. An unsecured loan from as low as $500 up to $100,000 that can save you on costs and fees, but you’ll need to qualify with your credit score and a regular source of income. Compare the best personal loans for your situation.
7. Crypto-backed loans. If you own cryptocurrency, you can borrow against these assets without having to sell them and pay capital gains tax. Learn about crypto-backed loan benefits and drawbacks to decide if it’s right for you.
8. Credit card advances. These have higher APRs than home equity loans or refis, but can be good for small to medium expenses. With a 0% introductory rate for 12 months, they can be a better deal than other types of short-term loans. Compare the best introductory 0% APR credit cards.
9. Peer-to-peer (P2P) loans. Like a personal loan, except your loan is funded by another individual instead of a financial institution. Requirements may be more lenient than with a bank, but loans aren’t guaranteed to be funded. Compare the most popular P2P lending providers.

Bottom line

A VA cash-out mortgage refinance may make sense if you want to get money out and secure a lower rate at the same time. But it may be more expensive than a conventional mortgage refinance due to the VA Funding Fee. And if you only want to access cash from your equity, a home equity loan or HELOC could be a cheaper alternative.
Learn more about cash-out refinancing and if it’s the right choice for you.