Comparing VA Refinance Rates and VA Cash Out Requirements
VA cash out requirements differ by lender, which some set higher standards on credit and capacity. The minimum credit score, maximum debt-to-income ratios, and VA refinance rates can be the biggest factor when it comes to choosing the right mortgage company. VA cash out eligibility is determined by the Automated Underwriting System (AUS) findings and VA guidelines.
New Change to Maximum Loan-to-Value
The major changes, Circular 26-18-30, took effect February 15, 2019, which changed:
- VA cash out requirements.
- New maximum loan-to-value of 90%.
- A new Net Tangible Benefit Test.
- Fee recoupment of 36 months for Type I cash out refinances.
Cash Out Net Tangible Benefit
One of the eight VA cash out requirements for the Net Tangible Benefit must be met. The eight cash out Net Tangible Benefits are:
- Eliminating monthly mortgage insurance.
- New term being shorter.
- Interest rate is lower than the one being refinanced.
- Payment is lower than the previous.
- New loan results in an increase in Veteran’s monthly residual income.
- Interim loan to construct, alter or repair.
- New loan is less or equal to 90% loan-to-value.
- Changes from adjustable to fixed.
Comparing your current loan to the key loan characteristics is important to consider when refinancing to determine if it is the right action to take.
VA Cash Out Requirements
VA loans are not difficult to qualify for and some lenders have overlays on debt-to-income ratios, credit scores or other internal guidelines that make it more difficult to qualify for. A VA cash out refinance allows qualified Veteran’s the opportunity to extract cash from the home’s equity.
Qualified veterans must have entitlement, which can be restored by paying off an existing VA loan.
VA cash out common ways to use cash back, but not limited to:
- VA debt consolidation or pay off debts.
- Home remodels, upgrades, and repairs.
- Tuition, books, other school expenses.
- Using the cash for an emergency.
- Other uses.
A VA overlay is an internal guideline on top of the U.S. Department of Veteran Affairs VA cash out requirements. Some common overlays are:
Requiring a higher credit score.
- Some mortgage companies require a minimum 640, 620, and 600 FICO credit score.
Minimum credit scores can vary lender to lender.
Capping loan-to-value limits and debt to income ratios:
- Some examples would be allowing a minimum of 43%, 47%, and 50% debt-to-income cap.
Nationwide Mortgage & Realty, LLC runs an Automated Underwriting System (AUS) and follows the eligibility findings. Some lenders will not manually underwrite a VA loan. Lender’s interest rates can be less competitive with lower credit score borrowers because of a higher pricing adjustment.
Understanding VA Refinance Rates
VA refinance rates depend on pricing adjustments, such as FICO credit score, loan amount, and other adjustments. Pricing adjustments is another way to layer risk. Your credit score often effects the price you pay in interest.
VA debt consolidation can save Veterans a lot of money by eliminating higher interest debt. Connecting with a Mortgage Loan Originator will provide an accurate quote on current rates with live pricing.
How Interest Rates Work
A Mortgage Loan Originator should only quote a rate if they properly price a loan. VA refinance rates can be calculated when a Mortgage Loan Originator uses a rate sheet or pricing tool.
Borrowers should understand that rate quotes are determined by live pricing and interest rates are final once the loan is locked and the loan funds. Some key points to consider:
- Interest rate pricing can change from one minute to the next.
- Rates can be determined by pricing adjustments so calculating a rate requires calculations based on the case scenario.
Common pricing adjustments are loan amount, appraised value, loan-to-value, refinance purpose, occupancy type, property type, number of units, state and country, credit score, lock period, compensation type, documentation type, escrow/impound waiver, loan term, and loan type.
VA Cash Out Funding Fee
For VA cash out refinances, the funding fee is currently:
- Regular Military – 2.15% for first time use and 3.3% for subsequent use.
- Reserve/National Guard is 2.4% for first time use and 3.3% for subsequent use.
This is calculated by multiplying the percentage by the total loan amount. The VA cash out funding fee is typically financed.
VA Cash Out Seasoning Requirements
In order for the VA to guarantee a loan, it must be properly seasoned. A VA loan is considered to be properly seasoned if:
- 210 days from the first payment have passed, and
- 6 months of payments have been made on the loan.