The VA Cash Out loan is a powerful tool for people to tap into the equity in their home. But what does it take to qualify? Here are some of the basic qualification and eligibility guidelines.
The VA cash out borrower can expect to provide the VA lender evidence of current employment with sufficient income to qualify for the VA home loan and existing monthly obligations. This requires the borrower to provide copies of two most recent paycheck stubs covering a 30 day period along with the previous two year’s W2 forms and in many cases, copies of the last two federal income tax returns.
If the borrower is considered self-employed or receive more than 25 percent of their gross income from commissions or bonuses, federal tax returns from the previous two years is a requirement along with a year to date profit and loss statement.
If you are a salaried or hourly worker, you’ll provide evidence of current employment with sufficient income to qualify for the VA home loan. This evidence can include your two most recent paycheck stubs covering a 30 day period along with the previous two year’s W2 forms and in many cases, copies of the last two federal income tax returns.
Talk to a licensed VA lender if you want more information on what documentation
The VA cash out refinance loan requires evidence of sufficient assets to close the loan. But, typically no cash is needed by the borrower since all costs can be wrapped into the new loan amount.
However, the VA lender may still require the most recent two month’s bank statements to be included with the loan file.
Appraisal and Credit
Unlike the VA streamline refinance loan, the VA cash out refinance loan requires a new appraisal for the property being refinanced. The appraisal report will provide the VA lender with the value the lender uses to calculate the maximum allowable VA cash out loan amount.
While the VA does not issue a minimum credit score, VA lenders typically require a minimum credit score of 620 to 640. VA lenders are free to establish their own minimum credit score with some minimum credit scores as high as 680 or more.
The eligible and qualified veteran can finance up to 100% of the current value of the home.
VA Home Loan Eligiblity and Qualification
Occupancy. VA cash out loans require the borrower to currently occupy the property and may not be rented out to a third party.
Certificate of Eligibility. The VA cash out refinance mortgage requires an updated certificate of eligibility. You can obtain your certificate of eligibility directly from the VA here, or you may work with your VA lender who can order your certificate of eligibility on your behalf. VA lenders can request and obtain your certificate electronically by providing a copy of your DD-214.
Affordability. Your VA lender will calculate your debt to income ratios using your current gross monthly household income and your total monthly obligations. Your debt to income ratio may not exceed 41 under most circumstances and is calculated by dividing gross income by monthly debt. If total debt is $2,000 and income is $8,000, the ratio is $2,000 divided by $8,000 for a ratio of .25, or 25%.
Debt used to calculate ratios include your total housing payment including principal and interest, taxes, insurance and any condo or homeowners association fees. In addition to the house payment, credit obligations such as automobile payments, student loans and installment loans factor into the debt ratio. Alimony, child support and day care will be part of the debt calculation for VA loans.
Loan Amount. The maximum loan amount for VA loans without a down payment is $417,000 in most areas, and as high as $1,094,625 in areas considered “high cost.” The loan amount can be as high as 100% of the current appraised value, assuming that amount is within the maximum VA loan limit for the county.
If you have more questions about VA loans, complete our online request to talk to a licensed VA lender.