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VA Cash Out Refinance Benefits

June 20, 2013 / in Mortgages Explained, VA Home Loans / by tim

VA loans offer great benefits. A VA cash out is no exception. Here are some of the benefits of this program.

VA Cash Out Benefits

Pulling cash out during a refinance is a great advantage, but depending on current interest rates, it can be combined with obtaining a lower interest rate. In some cases, you may be able to pull out cash, and still end up with a lower payment. 

In addition, other changes to the VA loan can be made while pulling cash out. You may be able to change the term of the loan from a 30 year mortgage to a 15 year VA loan, which reduces the amount of interest paid over the life of the loan.

Talk to a licensed VA lender to see if you qualify for a VA cash out.

A VA refinance can also be beneficial when refinancing out of an adjustable or hybrid loan into a fixed rate mortgage, providing payment stability throughout the life of the loan.

As with all VA loans, there will be closing costs associated with the loan and includes not only third party fees such as title insurance or origination charges but also the VA funding fee. The VA funding fee is an amount paid to the VA to help finance the VA home loan guarantee.

VA loans provide a partial guarantee to a VA lender should the VA loan go into default and represents 25 percent of the VA loan amount. All VA loans require a funding fee in various amounts with the exception of some VA borrowers receiving disability payments resulting from a service-related injury.

The VA funding fee for a cash out refinance is typically 3.3 percent of the loan amount, or $6,600 on a $200,000 loan, and can be rolled into the loan amount.

The 3.3% funding fee assumes the borrower has used their VA benefit before. If you have another type of loan, such as an FHA cash out or conventional loan, and have never used a VA loan before, you may be able to open a VA cash out with a lower fee, such as 2.15%.

Talk to a VA lender to see what your funding fee will be.

A VA refinance must have an inherent, tangible benefit to the borrower in the form of a lower payment, reduced interest or other incentive, such as the cash proceeds.

The borrower may use the refinance proceeds for any purpose including paying off existing consumer debt, paying for college or making home improvements.

For veterans with good credit and substantial equity in the home, the better option may be to open a home equity loan, often known as a 2nd mortgage. The fees are often lower on 2nd mortgages, and provide the borrower with the needed cash. Many local and national banks are offering home equity loans now that home values across the nation seem to be increasing. Examine your situation and see which option is better for you.

I’m Ready to Apply for a VA Loan

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