The VA home loan is one of the very few, if not only, loan programs that allows for 100% financing. But what many Orange County Veterans eligible for a VA loan don’t realize is that it also allows for refinancing to 100% loan to value. And even better, it is possible to get “cash out” up to 100% loan to value, up to the local county loan limit. This means that in Orange County, if a Veteran owns a home that is worth the VA county loan limit of $679,650 (in 2018) then he can refinance up to that loan amount. And the loan being paid off does not need to be a VA loan.
Why Would Someone Want to Refinance to 100% Loan to Value?
Refinancing is not for everyone. And pulling equity out can be dangerous, depending on the purpose of the refinance and the strength of borrowers qualifications. But there are plenty of reasons why this is a viable option for some.
- Home Improvements – It’s not easy to get a construction loan these days. And even if you can get a construction loan it will typically come with restrictions on disbursements to contractors, high costs, etc. With VA, if there is any equity at all you can access it and without restrictions on its use.
- Debt consolidation. For those home owners who have debts that are holding them back, being able to refinance and consolidate those debts into one loan can suddenly free up cash flow. For those looking to consolidate debt, a smart plan would be to look at using some of the monthly savings to accelerate the principal pay down on the new mortgage after building up a solid emergency reserve account.
- College expenses. Kids grow up fast. And college is more expensive than ever. Using built up home equity is just another way to help pay tuition without dealing with student loans. Mortgage rates do tend to be lower than student loan rates.
- Investments. For some, it may make sense to pull equity out for other investments. Hopefully, safe investments.
What to Consider when Refinancing
There are several important considerations when refinancing.
- How long do you plan to remain in the home and/or loan? With any refinance you want to make sure you “break even” before you are out of the home or loan. Many times a VA refinance can be closed with the lender covering closing costs with a “lender credit”. However, unless you are a disabled Veteran qualifying for a Funding Fee waiver, then expect a full Funding Fee of 3.3% to be tacked onto the back end of the loan. If your plan is to sell the home soon, then a VA cashout refinance may not make sense.
- What is your current interest rate and how much cash are you trying to pull out? Depending on current rates, it may or may not make sense to get a new 1st mortgage. For example, someone who has a 30 year fixed rate of 3.25% may not want to give that rate up, especially if they really don’t need much cash. Maybe an equity line 2nd is a better option.
Find out if a VA Refinance is Right for You
The best way to find out if a 100% VA cashout refinance is right for you is to talk to a VA loan officer who should be able to provide custom loan scenarios with details on the new loan amount, payment, closing costs (and any lender credit to offset closing costs), and amount of cash out. The loan officer should also be able to provide a Side by Side Analysis of your current loan to the new VA loan and other possible refinance solutions.
Authored by Tim Storm, a California VA Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial NMLS #7706. Direct line at 949-640-3102. www.OrangeCountyVALoans.com