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 the new VA cash out guidelines.
Common VA Cash Out Loan Overlays
Some lenders make it tougher to qualify for a VA cash out refinance due to setting higher standards on collateral, capacity, and credit.
Minimum Credit Score
When looking for VA cash out refinancing options, minimum credit score is a very common VA overlay. Lenders often require a minimum credit score of 640, 620 or 600. When lenders set higher standards on credit, they often dismiss Veterans and say they cannot help. The truth is that some lenders allow lower credit scores.
Debt-to-Income Caps
Setting caps for debt-to-income ratios is another common overlay for VA cash-out-refinance loans. Even when a 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%, 47% or 43%. Truth is that lenders can go higher on debt-to-income ratios.
Manual Underwriting
A lot of VA lenders will not manually underwrite a VA loan. 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.
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 90% loan-to-value.
Also, there is a new VA cash out refinance loan disclosure form that requires a borrower to meet a net tangible benefit.
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.
Streamlined Process
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). Eligibility is determined during the pre-approval process, which can be broken down into 7 steps.
7 Loan Process 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.
