Remove Mortgage Insurance with a VA Cash Out Refinance

August 14, 2013 / in Mortgages Explained, VA Home Loans / by tim

When you put down less than 20% on a home loan, there is often mortgage insurance added to your monthly payment. A VA cash out can be a great tool to remove these fees.

Use a VA Cash out to Refinance a Non-VA Loan to a VA Loan

Another version of the VA cash out refinance can be used to convert an existing conventional, FHA, USDA, or other type of loan into a VA mortgage. You can get rid of the monthly fees like FHA mortgage insurance, private mortgage insurance, or the USDA fee.

See if you qualify for a VA cash out loan. Click here to complete a simple one-minute form.

The VA cash out option is an excellent way for borrowers whose mortgage balance is at or near their current value and who cannot refinance due to the lack of equity in the property.  Conventional loans underwritten to Fannie Mae or Freddie Mac guidelines require that a refinance transaction must have at least 10 percent equity in the home.

For example, if the loan is $200,000 the minimum appraised value must be $223,000. If the value of the home is $210,000 for instance, a conventional loan does not have enough equity for a traditional refinance loan.

What about HARP?

The exception to this is the HARP program, which should be the first refinance consideration for borrowers with a loan owned by Fannie Mae or Freddie Mac. Still, many homeowners with a conventional loan won’t qualify for HARP, so a VA cash out is a great alternative option.

The VA loan can refinance up to 100% of the current value of the property when switching from a conventional to a VA loan.

For example, if a borrower has a conventional loan amount of $200,000 and a value of $210,000, a VA loan can convert the existing loan to a VA home loan without the need for 10 percent equity in the property.

You could also use a VA cash out to eliminate FHA or conventional mortgage insurance, or even the annual USDA fee. Often, the property may not have enough equity to request the mortgage insurance be dropped on any of these programs (the USDA annual fee may not be dropped at all). Since VA loans do not require mortgage insurance, you could potentially save a substantial amount each month.

Some FHA loans, for example, have mortgage insurance costs of well over $200 per month. And, the USDA annual fee is usually 0.30% or 0.40% of the existing loan balance each year.

These excess costs required on other loan types can be done away with using a VA cash out loan.

Again, there are closing costs involved, including the funding fee in most cases, so any VA cash out refinance transaction should be discussed with a VA loan officer.

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