What are the Pros and Cons of a VA Cash-out?

Your home is one of the most significant investments you’ll ever make, and for many people, a VA cash-out is one of the best ways to leverage that investment. In addition, some homeowners refinance because they want to pay off outstanding loans, finance home improvements, or even re-channel some of their equity into an investment. 

Regardless of why you’re considering refinancing, we’d like to help you navigate the pros and cons of a VA cash-out.  

What is a VA Cash-Out?

A VA cash-out allows military homeowners to borrow up to 90 percent of their home’s value and collect the difference in cash. Conventional and FHA-sponsored cash-out loans only allow homeowners to borrow up to 80 percent of their home’s value. 

Am I Eligible for a VA Cash-Out?

The quick answer is that veterans, military personnel, and surviving military spouses may all be eligible for a VA cash-out. However, approval is also contingent upon the applicant’s credit, income, debt-to-income ratio, and more. 

Pros of a VA Cash-Out

A VA cash-out may not be suitable for all military homeowners, but it does have advantages over conventional and FHA-sponsored cash-out loans. Here are a few reasons to consider a VA cash-out refinance.

 Lower rates: Because the Department of Veterans Affairs backs VA cash-outs, lenders consider them “less risky.” Thus, interest rates are typically lower for VA cash-outs.

  • Borrow more home equity: Conventional and FHA-sponsored cash-out loans only allow homeowners to borrow up to 80 percent of their home’s value. A VA cash-out enables you to borrow up to 90 percent. 
  • No Mortgage Insurance: Another benefit of having your loan backed by the Department of Veterans Affairs is that you do not have to pay for mortgage insurance. 

Cons of a VA Cash-Out 

 VA cash-out loans are useful but not the best option for every homeowner. Here’s why:

  • Increased Mortgage Rates: When you apply for a cash-out loan, lenders will perform a “hard inquiry” into your credit score. Refinancing could increase your mortgage rate if your score is lower than when you secured your original loan.
  • You’re restarting the loan term: When you cash out your mortgage, you’re essentially restarting the clock on the loan term and adding in additional interest. Therefore, if a VA cash-out loan does not significantly improve your financial situation or eliminate other outstanding high-interest loans, there’s no reason to pursue it. 
  • More risk: While many homeowners use VA cash-out finances to fund home improvement projects, increase their earning potential, or eliminate outstanding debts, it may be tempting to use cash-out money for travel and leisure. We do not recommend refinancing your home unless it increases the overall value of the investment.  

Contact Us to Get Started On Your VA Cash-Out Loan

Do you want to see if a VA Cash-Out loan is right for you? Our loan experts can help you secure some of the best VA loan rates. Contact us to get started.

 

 

 

 

Written By

John Giannattasio

John Giannattasio is an independent mortgage broker based in San Diego. He brings a wealth of diverse business knowledge and experience to his mortgage practice, which results in a stress-free, seamless, and strategic experience for his clients.

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