How Does a VA Cash Out Work?
A VA cash out mortgage refinance can help you pull money from the equity you have in your home. In some cases, you may also be able to lower your monthly mortgage payments or get a lower interest rate. When you refinance, you take out a new loan for more than what remains of your existing one. The overage amount is yours to keep for whatever purpose you like. Here's what you need to know about these types of loans and how they work.
Designed Specifically for Veterans
VA cash out refinances are designed with former service members in mind. The VA works closely with lenders to obtain the most favorable loan terms to thank veterans for their service to our country.
Replacing Your Current Mortgage
Many people confuse VA cash out refinances with home equity lines of credit (HELOC). While both methods let you borrow money against the equity you have built up in your home, a HELOC is an additional loan that you take out on top of your current mortgage. A VA cash out refinance eliminates your existing loan, replacing it with a new one.
Expanded Borrowing Capability
With a VA cash out, you'll be able to borrow the full value of your home if you so desire. This is in contrast with conventional cash outs, which usually have a percentage limit that you are able to borrow; typically about 80 percent. This gives you a lot more flexibility in terms of how much money you can cash out. Be careful not to take on a larger loan than you can comfortably handle, as this could be setting yourself up for financial disaster.
Simplified Closing Costs
Whenever you take out a mortgage, whether it is an initial loan or a refinance, you'll have to pay closing costs. Depending on the area where you live, this amount can vary, but it typically amounts to about 5 percent of the value of your property. With a VA cash out, you can roll these costs into your loan, so you won't have to pay any money out of pocket to fund the new loan.
Refinance Any Type of Mortgage
With a VA cash out, you can refinance any type of mortgage. This includes FHA and other low-down-payment loans, conventional mortgages and other VA home loans. If you are currently paying private mortgage insurance on your loan, refinancing can help you eliminate those extra monthly payments, especially if the value of your home has increased significantly since you bought it.
Avoiding Common Pitfalls
It is important to take the time to carefully consider your reasons for refinancing your mortgage. If you are already struggling to make ends meet and need an influx of cash just to stay afloat, you are likely to be in a similar position when that cash runs out, putting you at risk of bankruptcy. If, on the other hand, you plan to use the money to pay off your credit cards with high interest rates and don't intend to rack up credit card debt again in the future, a VA cash out can help you avoid paying so much in interest.
Coastal Pacific Lending Can Help
Here at Coastal Pacific Lending, we have been helping veterans and their families obtain home loans for many years, and we can help you with your VA cash out refinance too. Our associates will be happy to answer any questions you have about refinancing your mortgage. We'll work with you to set up a new loan for you with terms that suit your needs and budget. Call Coastal Pacific Lending today at 888-699-3391 to get started.