VA is one of the most unique loan programs available in Orange County, primarily because of a Veterans ability to purchase a home with no down payment up to a price of $625,500. (2016 100% Limit) But what many Orange County Veterans don't realize is that VA also allows for cash out refinancing up to 100% of the properties value (and county VA loan limit of $625,500 in 2016).
Different Types of VA Refinancing
There are three basic refinance scenarios when it comes to the VA loan program. First, there is the IRRRL, or Interest Rate Reduction Refinance Loan. This refinance is specifically for those who already have a VA loan and are just looking to lower their interest rate. This is a "rate and term" refinance, meaning no cash is going back to the borrower. This is a great program because there is no appraisal and no qualifying. Super easy. The second type of VA refinance is someone who has a non-VA loan and is looking to refinance into a VA loan. This has been popular for those who wanted to refinance out of either an FHA loan or a Conventional loan with mortgage insurance. VA does not have monthly mortgage insurance and allows refinancing to 100% loan to value. The third type of refinance is where the Veteran wants to pull some equity from their home. They may or may not already have a VA loan.
With interest rates still fairly low and home prices up, some Veterans are taking advantage and pulling cash out for making those home improvements they have wanted to make. Other reasons for pulling cash out include debt consolidation, education costs, investments, etc.
Many lenders don't follow all VA loan guidelines to the letter, and this guideline is one of them. Many lenders put a cap on the loan to value for cash out at 90% of the properties value. But there are a few VA lenders offering cash out refinancing to 100% loan to value.
Important Factors to Consider with a VA Cashout Refinance
Just because you now have equity doesn't mean it automatically makes sense to do a cashout refinance. Unlike the VA Interest Rate Reduction Refinance Loan, which comes with a low VA Funding Fee equal to .5%, a VA cash out refinance comes with a full 2.15% Funding Fee for first time use, or 3.3% Funding Fee for any subsequent use of eligibility. (Click to see the full Funding Fee chart) 3.3% is a big amount that is tacked onto the back end of the loan, so it's important to have a VA Loan Specialist working with you who can prepare custom, detailed loan scenarios showing a breakdown of the new loan amount, including the Funding Fee, payment including taxes and insurance, closing costs and prepaid expenses, and an estimate of the amount of "cash" going to the borrower after the closing of the refinance. For those Veterans who qualify for the Funding Fee waiver, a cash out refinance can look a lot more attractive.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com