VA Cash-Out Refinance To 100% Loan-To-Value

June 14th, 2022

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A VA cash-out refinance can be used for many reasons. There are a few important things to know about cash-out refinancing to 100% loan-to-value (LTV) when using your VA eligibility.

On a VA cash-out refinance to a 100% LTV the 100% must include the VA funding fee.

 

Example scenario that is acceptable:

$500,000 value of home

$300,000 existing VA loan

$182,600 in cash out

$482,600 base VA loan amount

+$17,373 3.6% VA Funding Fee (*VA Funding Fee 3.6% of the base VA loan amount)

=$499,973 total loan amount

This would be acceptable because the new loan plus the VA Funding Fee is equal to or less than the value of the home. This means that the entire loan amount is equal to or less than a 100% LTV.

*You’ll see looking at the chart here that the VA Funding Fee is 3.6% if you have already used your VA eligibility to get a mortgage prior to a VA cash-out refi.

 

Example scenario that is not acceptable:

$500,000 value of home

$300,000 existing VA loan

$200,000 cash out

$500,000 base VA loan amount

+$18,000 3.6% VA Funding Fee

=$518,000 total loan amount

This would not be acceptable because the new loan amount plus the VA Funding Fee is greater than the value of the home. The above scenario creates a 103.6% LTV, and would not be allowed.

 

What Are Overlays

Some lenders have something called “overlays”. Overlays are where a lender will overlay their own guideline over top of the VA guidelines. Overlay guidelines are usually more restrictive than VA’s guidelines. Some lenders may limit their cash out LTV to 90%, for example.

I know for us the loan term must be for 30 years when the LTV exceeds 90.00%, per our own overlays. This means you could not get a 15 or 20 year fixed rate when going with an LTV that is 90.01% to 100%.

Benefits

A veteran may want cash out to do renovations to the home, for debt consolidation, or for investment. One should always be careful and consider the pros and cons in taking on more debt through their home equity, but it may be beneficial.

The VA cash-out refinance allows up to 100% financing which lets you access all the equity available in your home.

Veterans can even use a VA cash-out refinance loan even if their current mortgage is not a VA loan. If your current loan is an FHA loan or a Conventional loan, you may still get a VA cash-out refinance if you are an eligible veteran.

While VA interest rates are usually lower than rates for Conventional loans, it is important to note that cash-out VA interest rates may be a little higher than no-cash-out VA mortgage rates.

Mortgage guidelines can change frequently, please schedule a call or email me with questions on your specific situation.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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