VA Cash-Out Refinance Guide for California Homeowners

We often write about the VA loan program from a home-buying perspective. That’s because this program offers a lot of benefits for home buyers, including the ability to finance the full purchase price with no down payment.

But VA loans can also be used to refinance a home that has an existing mortgage loan, even if the existing mortgage is a conventional (non-VA) loan.

In this guide, we’ll explain how eligible homeowners in California can use the VA cash-out refinance loan to convert some of their home equity into cash.

The VA Cash-Out Refinance Loan

A VA cash-out refinance loan is a special type of loan backed by the U.S. Department of Veterans Affairs. It gives military members and veterans a way to tap into their home equity and convert some of it into cash.

The cash proceeds can be used for a variety of purposes, such as consolidating debt, making home improvements, or even funding major expenses like education or starting a business.

As with all of the VA mortgage loan products, the cash-out refinance loan is only available to eligible military members, veterans, and certain surviving spouses.

How It Differs from Regular Refinancing

Before diving into the specifics of VA cash-out refinancing, let’s clarify how it differs from a regular refinance loan. A standard refinance replaces your existing mortgage with a new one, typically to secure a lower interest rate or adjust the loan term.

A VA cash-out refinance does the same thing, but it also goes a step further.

It replaces your current mortgage, but with a key difference. The new loan amount can actually exceed what you owe on your existing mortgage. This creates a cash difference that you can receive at closing. This is the “cash-out” portion of the loan.

How It Benefits California Homeowners

If you are a current military member or veteran in California, and your home has increased in value since you purchased it, you could benefit from a VA cash-out refinance loan.

This refinancing strategy allows you to tap into that equity. You would do this by taking out a new loan based on the home’s current appraised value, minus what you still owe on your existing mortgage. The difference becomes cash you receive at closing.

This cash can be used for various purposes, such as:

• Paying Off Debt: High-interest debt (like credit cards) can be a burden. VA cash-out refinancing can give you the resources you need to consolidate multiple debts, and possibly even pay them off.
• Home Improvements: Dreaming of a kitchen remodel or a new roof? A cash-out refinance can provide the funds needed to upgrade your living space and possibly increase your home’s value at the same time.
• Major Expenses: Need to finance a child’s education or launch your own business? A cash-out refinance can be a source of funds for major life events and transitions.

Eligibility for VA Cash-Out Refinance

The eligibility requirements for a VA cash-out refinance loan are the same as the requirements for standard purchase loans. Generally speaking, this program is limited to borrowers who currently serve in the military or have served in the past.

The following groups may be eligible for VA cash-out refinancing:

• Active-duty military who have served for at least 90 days
• National Guard and Reserve members who have completed at least six years of regular service or 90 days of active duty
• Surviving spouse of a military person who died in the service or due to a service-related disability

You’ll also need to have sufficient equity in your home.

“Equity” refers to the portion of your property that you truly own. It’s the market value of your home minus any outstanding mortgage balances or other liens. In simpler terms, it’s how much of your home you actually “own” outright, free and clear of debts.

The VA typically allows veterans to access up to 100% of the appraised value of their home minus any existing mortgage balance. So the greater the equity you have in your home, the more cash you can potentially access through a cash-out refinance.

As it explains on the Department of Veterans Affairs website: “The maximum loan amount is 100 percent of the appraised value, plus the cost of any energy efficiency improvements [if applicable], plus the VA funding fee.”

A Funding Fee Is Required

The above quote mentions that a “funding fee” can be included in the new loan, as part of the VA cash-out refinance process.

Nearly all VA-guaranteed home loans require a funding fee, and that applies to mortgage refinancing as well. These funding fees help sustain the program and all of the benefits it provides.

When it comes to cash-out refinancing, the funding fee amount will depend on whether it’s your first time using the program or a subsequent use. Generally speaking, first-time use requires a funding fee of 2.3%, while subsequent use requires 3.6%.

Other Requirements for the Program

The application process and requirements for a VA cash-out refinance are similar to a standard VA purchase loan. You can expect to go through the following steps…

• Appraisal: An approved appraiser will determine the current market value of your home.
• Credit Check: Your lender will assess your creditworthiness to determine your eligibility and interest rate.
• Underwriting: The lender will analyze your financial situation and the property details to determine the final loan approval.

The VA also has specific occupancy requirements for California homeowners pursuing cash-out refinancing. Borrowers must certify that they intend to personally occupy the property as their home, as opposed to using it as a rental or vacation property.

Have questions? Bridgepoint Funding specializes in the VA loan program and serves borrowers all across the state of California. Please contact us if you have questions about VA mortgage refinancing or anything else related to this subject!