A common perception of VA mortgages is that they are intended solely for the initial purchase of a home. However, the VA program also guarantees other loan uses. Eligible veterans can refinance most existing loans with a new mortgage from the Department of Veterans Affairs, withdrawing their home equity in the process.
The existing mortgage on a home refinanced through the Department of Veterans Affairs does not have to be a VA loan. Whether the current mortgage is a VA loan or not, obtaining a new VA mortgage to withdraw equity from your home is referred to as a cash-out refinance home loan.
A cash-out refinance loan is different from the other VA refinance option, known as an interest rate reduction refinance loan. An IRRRL is a refinance of debt only, where all equity remains in the home and is not paid out.
A cash-out refinance loan may be for the full amount of the appraised value of your home. If your current mortgage is a VA loan, your VA loan eligibility can be reused for the refinance. If your current mortgage is not a VA loan, your eligibility as a veteran is used to obtain a new VA loan.
Certificate of eligibility
The first step in financing your home with a new VA mortgage is to obtain a Certificate of Eligibility from the Department of Veterans Affairs. The certificate is required by potential lenders to confirm that you are eligible for the VA loan guarantee. You can apply for the certificate online or through the mail. Many mortgage lenders also provide assistance in obtaining the certificate.
Although the new loan is guaranteed by the government, it is a private lender that provides the mortgage funding. In addition to the Certificate of Eligibility, lenders are likely to require additional documents to verify your income and assets. After the loan is approved, you are ready to close on the new VA mortgage and receive your equity as cash.
One-time funding fee
In addition to receiving your home equity, refinancing provides the typical advantages of a VA mortgage. There is no ongoing requirement for private mortgage insurance. Instead, VA loans require a single up-front funding fee. The VA department provides a fee chart on its website that contains the funding fee rates for various types of qualifying military service.
The funding fee may be financed along with the mortgage, or you can choose to pay it at closing. The funding fee is not required of certain veterans with a service-related disability. Contact a VA loan specialist for more information about the advantages of VA refinancing.Share