New VA Cash Out Guidelines | Circular 26-19-5
All VA cash-out refinance loans must comply with the new rule effective February 15, 2019. VA cash out refinance underwriting guidelines can vary by lender, especially if that have an internal guideline on top of VA cash out loan guidelines.
Common VA Cash Out Refi Overlays
When looking for VA cash out refinancing options, minimum credit score is the number one overlay. Lenders advertise a minimum credit score of 640, 620 or even 600. Most lenders have these credit score benchmarks and say something along the lines, “Borrowers cannot be approved for VA financing with less than a 620 credit score.” The truth is lenders can approve a VA cash out loan with credit scores below those benchmarks and often even in the 500s.
Setting caps for debt-to-income ratios is another common overlay for VA cash-out-refinance loans. Even though the lender has an Automated Underwriting System (AUS) approval, they say that they cannot do the loan because the debt-to-income ratio is too high. The most common is setting a debt-to-income cap at 50%, but you can find lenders with 43%, 47% or other maximum debt-to-income guidelines.
A majority of the lenders cannot do manual underwriting for a VA cash out refi. This is often because they do not have the underwriting capacity for a manual underwrite. Lenders can have tougher VA cash out guidelines when they add their own specific lender guideline.
General VA Cash Out Refinancing Underwriting Guidelines
There are VA cash out guidelines when it comes to credit underwriting for VA loans. This process is streamlined by an Automated Underwriting System (AUS). When determining if you qualify for a VA cash out refi, a borrower should take the following steps:
- Determine what the benefits are in refinancing.
- Some examples for a VA cash out refi include: paying off debt, home improvements, an investment, or other reasons.
- Contact a Loan Originator to talk about eligibility and a get a list of documents required for underwriting and processing.
- Once you have given a Loan Originator authorization to pull credit and run the Automated Underwriting System (AUS), the process should begin.
- An application will be put together and signed by both the Loan Originator and veteran.
- The loan will be submitted to underwriting.
- A loan commitment will be issued once approved, which is just a list of stipulations that need to be satisfied in order to obtain a clear to close.
- Loans can be scheduled and close once a clear to close is obtained and all necessary requirements are satisfied.
New VA Cash Out Guidelines
There are some changes to VA cash-out refinance loans that were made effective February 15, 2019.
- One change the circular 26-19-5 brought is that borrowers can cash out to 100%, but this has to include the VA funding fee.
- There is a new VA cash out refinance loan disclosure form that requires a borrower to meet a net tangible benefit.
- Must be signed no later than the third day after receiving the application.
- Again at loan closing.
- Another change to VA cash out refinancing – loans being refinanced within a year from the closing date:
- Obtain a payment history or ledger documenting all payments; or
- A supplement identifying payments made in the time frame.