What’s the Maximum LTV on a VA Cash-Out Refinance?

You have a VA loan but now you want to tap into your home’s equity. Maybe you want to make some home renovations or you need to consolidate debt. Whatever the reason, the VA does allow you to cash out your equity as long as you qualify.

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The good news is that you can borrow as much as 100% of your home’s value when refinancing with the VA cash-out refinance. But you aren’t automatically eligible to do so – you have to qualify for it. We help you understand the VA cash-out refinance qualifications below.

You Need Mortgage Seasoning

Your first qualification may be a simple one. You must have some type of ‘mortgage seasoning.’ In other words, you must have your mortgage for at least six months (sometimes 12 months) before you can tap into your home’s equity.

If you use the VA purchase loan at its full advantage, you probably won’t have equity in the home before you have the mortgage for at least 12 months. In many cases, it takes years before you’ll have adequate equity in your home to cash it out. If you did make a down payment, though, you may have equity faster, but you won’t be able to refinance until you have the loan for 6 to 12 months. Each lender has their own requirements, so shop around and find a lender that will accept your circumstances.

You Need a New Appraisal

In order to cash out your home’s equity, you must know how much equity you have. In order to do this, you’ll need to pay for a new appraisal. This may cost you between $300 and $500 depending on where you live and the size of your home.

The new appraisal will let lenders know how much you can borrow. They will take the new value of your home and deduct the current amount of your outstanding mortgage. The amount that is left is the amount of your equity that you may be able to take out if you wish to do so.

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You Need Enough Entitlement

Because you are likely increasing your mortgage amount, you’ll need enough entitlement to get the loan. You used your entitlement initially when you bought your home with the VA loan. The entitlement is what every eligible veteran gets when they are eligible for a VA loan.

Today, full entitlement means a veteran can buy a home for up to $453,100 without a down payment. Once you buy a home, the cost of the home comes off the entitlement. Let’s say you bought a home for $250,000. You would then have $203,100 left in entitlement. When you apply for the cash-out refinance, the VA would use some of the $203,100 entitlement to give you the larger loan.

If you don’t have enough entitlement because you used it all or lost some due to a previous foreclosure, you won’t be able to use the VA cash-out refinance. The VA requires that you have enough entitlement to cover the loan.

You Need Good Credit and a Low Debt Ratio

Of course, you must personally qualify for the VA cash-out refinance too. When you take money out of your home’s equity, you increase your mortgage amount. This puts the lender at a higher risk of default. Before the lender will approve your cash-out refinance request, they will make sure that you have a decent credit score and manageable debt ratio.

Just what credit score and debt ratio you need really depends on the lender. The VA doesn’t have a minimum credit score or maximum debt ratio written in stone. On average, though, lenders prefer at least a 620 (or higher) credit score and a maximum 43% total debt ratio. You can check with individual lenders to see what they require as some have tougher requirements than others.

You Can Have Any Type of Loan

Unlike the VA streamline refinance, you don’t have to have a current VA loan to use the VA cash-out refinance. In fact, if you have an FHA or conventional loan and you want to use your VA benefit, it’s automatically a VA cash-out refinance.

The VA cash-out refinance makes it possible for you to tap into your home’s equity with simple requirements. Keep in mind that you’ll pay closing costs and the VA funding fee all over again if you do this. Make sure you do the math to ensure that the refinance is worth your money and time.

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