VA Loan Refinancing Rules For Cash-out Refinancing

VA loan refinancing options include cash-out refinancing loans; qualified VA loan applicants can apply for a new loan that pays off the first mortgage and features money back to the borrower after the old loan is paid off. This money can be used for any purpose not prohibited by the lender. That may include discount points, fees and charges, etc.

Specifically, VA loan rules say of cash-out refinancing:

“A cash-out refinancing loan is a VA-guaranteed loan that refinances any type of lien or liens against the secured property.  The liens to be paid off may be:

·  current or delinquent, and
·  from any source, such as:
-  tax or judgment liens, or
-  VA, FHA, or conventional mortgages.

VA loan rules add that the new loan “must be secured by a first lien on the property.” Borrowers can apply for 100 percent of the appraised value of the home, plus the VA loan funding fee and “ the cost of any energy efficiency improvements” according to the VA Lender’s Handbook.

Unlike VA Interest Rate Reduction Refinancing Loans, cash out refinancing does use the borrower’s entitlement. If a borrower has a first VA home loan which is not currently paid off, can that borrower apply for cash-out refinancing? According to the VA loan rulebook, yes.

While the borrower must have “sufficient available entitlement for the loan”, VA rules add,  “If an existing VA loan on the same property will be paid off by the refinancing loan, the entitlement used for that existing loan can be restored for purposes of obtaining the new loan.”

VA cash-out refinancing loans require the borrower to certify he or she will occupy the home as the primary residence in the same manner required of new purchase VA home loans. VA cash-out refinances are similar to new purchase loans in other ways, too:

“Loan processing procedures are virtually the same as for non-refinancing loans.  A full appraisal, credit information, and underwriting are required...”

VA loan instructions to the lender state, “To report loan closing, submit all of the documents required for non-refinancing a statement signed by the veteran which shows:

·  the cash proceeds paid,
·  an itemization of the debts paid from loan proceeds, and the identification of those debts secured by liens of record.”

While VA IRRRLs may be closed automatically by any lender, cash out refinance loans allow only lenders with “automatic approval authority” to close cash-out loans without prior approval from the Department of Veterans Affairs. Ask your loan officer if you aren’t sure your lender has automatic approval authority.

VA loans for cash-out refinancing transactions can be used to refinance any type of loan including conventional, VA, FHA, etc. VA loan rules say “any reasonable amount” of discount points may be paid from the proceeds of the loan. The maximum guaranty for these types of refinancing loans is the same as new purchase VA loans. That maximum is different for high-cost counties and the amounts vary depending on market conditions and other factors. Consult your Regional VA Loan Center for more information on high-cost counties in your area.

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