Va Equity Loan Guide: Eligibility, Rates, and More

A VA equity loan is a type of loan that allows homeowners with VA-guaranteed home loans to borrow money using the equity in their home.

To be eligible for a VA equity loan, you must have a VA-guaranteed home loan and meet the VA's minimum property requirements.

The VA sets a maximum loan-to-value (LTV) ratio for VA equity loans, which is 90% of the home's value.

You can use the funds from a VA equity loan to pay for home improvements, pay off high-interest debt, or cover unexpected expenses.

A different take: Equity Loan to Pay off Credit Cards

To qualify for a VA equity loan, you'll typically need at least 20% equity in your home, which is the value of your home minus the balance on your VA mortgage.

A healthy credit score, steady payments on existing credit, and a low debt-to-income ratio are also essential requirements. You'll also need good standing with your current mortgage and income that is demonstrated, reliable, and adequate.

To be eligible for a VA Cash-Out refinance, you'll need to meet the VA's service requirements for VA loan eligibility, certify that you intend to occupy the property as your primary residence, and meet the lender's loan-to-value (LTV) requirements.

Here are the key requirements to consider:

To qualify for a VA Cash-Out refinance, you'll need to meet the VA's service requirements for VA loan eligibility. This means you'll need to have served in the military and meet the VA's specific requirements for eligibility.

The VA requires a minimum credit score of 620 for a VA Cash-Out refinance. However, lenders may have their own credit score requirements, so be sure to check with your lender.

You'll also need to certify that you intend to occupy the property as your primary residence. This is a requirement for all VA Cash-Out refinances.

The VA allows qualified Veterans to refinance with a loan-to-value ratio up to 100%, but lenders often cap LTV at 90% in most cases. This means that if you have a loan balance of $200,000 and your home appraises for $400,000, you can take out up to $160,000 in cash.

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To recoup the costs and fees of a Cash-Out refinance, lenders may have guidelines regarding how long it takes. For a rate and term cash-out, the time to recoup typically can't exceed 84 months, but for a true Cash-Out refinance, the time to recoup can exceed 84 months if there are positive reasons to support the longer time frame.

Here are some common requirements for VA Cash-Out refinances:

As you consider a VA cash-out refinance, it's essential to be aware of the potential downsides. Timing is crucial, and during periods of high interest rates, you may not be able to beat the rate on your current mortgage.

Borrowers who refinance and keep the same timeline, swapping a 30-year payout for another 30-year payout, will end up paying more overall interest. This is a common mistake that can cost you in the long run.

Closing costs on VA loans, including cash-out refinances, typically range from 3% to 6% of the total loan balance. You'll also need to satisfy a funding fee, usually 2.15% to 3.3% of the loan.

For another approach, see: Interest Only Home Mortgage Loans

You can't roll your closing costs on top of the loan, so you'll need to cover these costs at the closing table, probably using some of the equity you're cashing out.

Here are some additional cons to consider:

With a VA equity loan, you have several options to consider. You can borrow up to 90% of your home's value with a VA Cash-Out refinance.

A VA Cash-Out refinance allows you to take out a new VA loan for an amount larger than what you currently owe on your home. This can be a good option if you need to pay off debt, make home improvements, or take care of other needs.

You'll need to meet certain guidelines to qualify for a VA Cash-Out refinance. This includes a net tangible benefit test to ensure the refinance is in your best financial interest, and a seasoning guideline that typically requires you to have made at least six monthly payments on your current loan.

The VA funding fee is also a consideration. This fee can be financed into the loan, but you'll still need to meet the 90% loan-to-value guideline if you're taking out cash.

You may also want to consider a Home Equity Line of Credit (HELOC). These loans can be attractive because they allow you to access only the equity you need, and you only pay interest on the amount borrowed during the draw period.

Here are some key benefits of a VA-backed cash-out refinance loan:

Keep in mind that you'll want to understand the costs and benefits of the transaction, including closing costs and the VA funding fee.

You can use a VA-backed cash-out refinance loan to take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs.

Refinancing a non-VA loan into a VA-backed loan is also an option, which can provide more benefits and protections.

For more insights, see: How to Pay off Equity Loan

You can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas, and more in some high-cost counties, on a no-down-payment loan.

If you want to make a down payment, you can borrow even more, but be aware that closing costs can add up to thousands of dollars.

To understand how your new loan amount relates to the value of your home, make sure to consult with your lender and research the VA funding fee and other closing costs.

Here are some key points to consider when getting a VA equity loan:

You'll need to find a lender to get a VA equity loan, and it's best to go through a private bank, mortgage company, or credit union, not directly through the VA.

Be careful when considering home loan refinance offers, as claims that seem too good to be true, like skipping payments or getting very low interest rates, may be signs of a misleading offer.

To get a cash-out refinance, you'll need to contact several lenders to compare your options, as terms and fees may vary.

You'll need to go through a private bank, mortgage company, or credit union to get a cash-out refinance loan. Terms and fees may vary, so it's a good idea to contact several lenders to compare your options.

Be cautious of lenders making claims that sound too good to be true, such as skipping payments or offering very low interest rates. These could be signs of a misleading offer.

You can also consider a home equity loan, which is a common method for borrowing against the equity in your home. A home equity loan is essentially a second mortgage that provides a lump sum of cash to be paid back over time.

Additional reading: Is Refinancing a Loan a Good Idea

VA loan rates change daily based on market conditions, so it's essential to check current rates before applying for a loan.

The current VA cash-out rates for each VA loan type are:

These rates are subject to change, so it's crucial to verify the rates before making a decision.