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The Veterans Administration (VA) had started an affordable home loan program for war veterans at the end of the Second World War. Since then, US veterans have been able to acquire home loans at much lower rates than conventional mortgages. Till date, more than 22 million veterans and current members of the US Armed Forces have benefited from the program.
The chief advantages of a VA home loan are that no mortgage insurance needs to be purchased and the loan can be refinanced up to 100 percent of the value of the property.
If you have purchased a home loan under the VA program, here is a detailed guide which elucidates the requirements and process of acquiring loan cashout refinance.
The VA loan programs act as a flexible and a robust lending option for the military
borrower where the loan structure pledges to repay a certain sum of every VA loan it
guarantees in the unlikely event where the borrower defaults on the payment. Below are
some of the important details of the program:-
The VA home loan program was created in 1944 by the United States government
This specialized loan program was aimed to help the returning service members buy homes without the usual hassles of a heavy down payment requirement or high credit criteria
It is an excellent home loan benefit program to help the veterans, active duty military members, and their families either purchase new homes or refinance their existing mortgages.
The VA Home Loan program is an extremely beneficial loan proposition for the service members. Considering the strict lending requirements in the recent years coupled with ever-fluctuating housing market rates in the US, applying for a traditional home loan becomes a nightmare for the military homebuyers.
In such a scenario, the VA Loan is no less than a boon for the military home buyers who find it extremely difficult to trade the otherwise tough home loan requirements, large down payments, and strict credit standards.
The first and foremost advantage of the VA loans is that they come with lesser stringent loan underwriting standards and requirements as compared to the other conventional loan options. Furthermore, the VA loans come with no private mortgage insurance (PMI) liability, a heavy monthly expense that the borrowers of the non-VA loans are required to pay in case they put any less than 20 percent of the total loan amount.
Equity is the difference between the value of your home in the market and the loan amount which is due. You can increase the equity value by paying off more installments of your mortgage loan and by enhancing the value of your property through maintenance. The VA cashout refinance can be taken against the equity amount for a variety of reasons:
The VA cashout refinance option can be applied to all types of loans like conventional, USDA or FHA loans. The non-VA loan gets converted into a VA loan after refinancing. There is no requirement of a down payment. Those who do not possess enough equity to refinance into the same loan can benefit from this program and get a VA loan at a lower interest rate. A point to note is that the VA allows you to get up to 100 percent of the home value as a refinance loan without having to pay for mortgage insurance even though the loan-to-value ratio is high.
The VA cashout refinance option allows you to convert your home equity into liquid cash. There are two refinance categories under the VA cashout option:
In the first case, you get cash at the closing of the loan. It is usually in the form of a check. The second case does not result in the receipt of cash, but you can utilize the cashout amount to clear off other debts.
You basically substitute your existing mortgage loan with a bigger loan. The new loan helps in paying off the older debt and in most cases the interest rate on the new loan is lower than before.
For example, if the value of your property is $150,000 and the remaining loan amount is $100,000, you can get a cash out loan of $150,000 from which the equity amount of $50,000 is provided as cash during closing. With the help of this method, you can raise a lot of cash in a short time.
Among the major differences between the VA loans and other traditional home loans are:-
VA home loan attracts 0% down payment for the qualified borrowers whereas the majority of other home loans require heavy down payments to be paid by the borrowers that can go as high as 20% to secure a home loan which is way beyond the reach of many homebuyers
Since the VA loans are backed the government security, lenders feel a greater degree of flexibility and safety, which in turn leads to better and competitive interest rates as compared to the non-VA home loans
Since the VA Loans are safe and are government backed, banks generally do not require the borrowers to buy Private Mortgage Insurance, whereas PMI is an essential requirement in other conventional loans which adds to the monthly expenses of already burdened home loan borrowers
VA loans enjoy more credibility among the banks due to the government backing on these loans which makes it easier to apply and qualify for the VA Loans, making them easier to secure. Non-VA conventional loans, on the other hand, require much stricter procedures to be followed by the
The documents required for a VA cashout loan include:
o Income details including paystubs, tax returns, DD214 or W2s
o Statements from banks and other financial institutions with which you are associated
o Current debt situation and list of monthly debt payments
The lender requires full documentation to verify whether your financial condition permits you to pay back the new loan.
If you are employed somewhere, you need to submit paycheck stubs of at least a 30 day period along with W2 forms of the last two years. In some cases the lender also asks for the previous two tax returns. If you are self-employed, you are required to submit tax returns for the last two financial years and a statement containing profit and loss figures for a period of one year till the present date.
– A credit score of 640 or higher is generally desired by the lender. The VA department does not set any such limit but you need to check the credit score requirement of the lender whom you are planning to approach for the cashout loan.
– You need to get a property appraisal done so that the lender comes to know the exact value of your property. This value determines the amount of loan that you can expect to get from the lender.
– You are required to be the current occupant of the property for which you are taking the VA cashout refinance loan.
– The lender calculates the debt to income ratio before sanctioning the loan. The ratio is measured by dividing your gross income with debt payments made on a monthly basis. Maximum ratio is 41%.
The total debt includes:
Insurance payments of any kind
Loan principal and interest
Other loans like student loans, automobile loans and EMIs
Daycare, child support and alimony payments
– The standard limit on the loan amount which can be expected through VA cashout refinancing is $453,100. In some areas where the cost of living and the value of homes is higher, the maximum loan limit is $679,650. A point to be noted is that this limit is meant for those loans on which zero equity is required by the VA. If you retain a home equity of about 25 percent of a loan amount which exceeds the limit, then you can apply for a larger VA cashout loan.
– The closing cost of a VA home loan is between 2.15 to 3.3 percent of the total loan amount depending on the number of times the refinancing is done. Closing costs generally include the VA upfront funding fees, insurance payments, appraisal fee, processing and underwriting charges, property inspection fees, title charges, recording fees and charges for credit report.
To qualify for a VA cashout refinance loan, you need to meet the eligibility criteria related to military service.
– You have served the country in a war for 90 days and are now retired
– Your wartime service period is 90 days and you are still a member of the Armed Forces
– You have served for 181 days during peacetime and are now retired
– You have been a part of the National Guards or Reserves for 6 years
– Your service in the post-Vietnam war era has been for 2 years after being enlisted during this time period
– Your spouse is still surviving
-Second World War
-Persian Gulf War
-Peacetime service includes the period in between wars from 1947-1981. In case you have served in between the years 1980 to 1990, the service period should be at least twenty-four months.
-Active duty related to training in the National Guard and Reserves is not considered eligible for receiving the benefits of VA financing.
In case you do not meet any of the above-mentioned criteria, you can still stand a chance of getting a VA cashout loan if you have been discharged from duty for a reason which is not dishonorable (including disability, medical emergency and involuntary discharge).
Eligibility for a VA cashout loan can be checked by making a request to the VA through the online platform. You need to obtain a Certificate of Eligibility and show it as a proof while applying for a cashout loan. This certificate can be obtained online by submitting a copy of the DD-214 form electronically.
VA cashout loans can also be taken by combining more than one mortgage into a single VA loan. It is not necessary for either of the existing mortgages to be VA loans. With the help of the VA cashout refinance loan, you can clear off both the previous loans, consolidate them into one loan and get rid of mortgage insurance at the same time. If some cash remains after making these payments, you can use it to pay other short term loans, medical bills or keep it for unexpected expenses.
This concludes our VA Refinance Cashout overview. Thanks for choosing Mortgage ADV. VA cashout refinancing from Mortgage ADV’s network serves veterans throughout the 50 states in the US.
of homebuyers stated that price is most
important when considering a mortgage