If you are a veteran, military service member, or eligible surviving spouse in Utah who needs money for renovations, catching up on bills, or other things, you might consider a VA cash-out refinance loan. These mortgages are available to qualifying individuals who have current VA mortgages or conventional loans and want to tap into the equity they’ve built in their homes. Here’s what to know about VA cash-out refinance mortgages and the benefits they provide from the experts at City Creek Mortgage.

What is a Utah VA Cash Out Refinance Loan?

A Utah VA cash out refinance loan is a new mortgage homeowners can take out to replace their existing mortgage. This loan is backed by the U.S. Department of Veterans Affairs and allows eligible borrowers to receive cash back from the equity they have built in their homes.

Unlike other cash-out refinance mortgages, the VA allows borrowers to borrow up to 100% of their home’s fair market value. However, some lenders will require people to have a loan-to-value ratio of 90%. By contrast, a conventional cash-out refinance mortgage typically requires you to maintain an 80% loan-to-value ratio, which means you’ll have access to less of the equity you have built in your home.

For example, if you purchased your home for $450,000 and currently have a mortgage with a balance of with a mortgage for $350,000 and the value of the home is now $500,000, you could potentially take out a new VA cash-out refinance loan for $500,000 and receive $150,000 back at closing minus the VA funding fee and closing costs.

On the other hand, a conventional cash out refinance would limit you to a loan amount of $400,000, which would limit your cash-out amount to $50,000 minus closing costs.

Eligibility for Utah VA Cash Out Refinance Mortgages

Only homeowners who meet specific eligibility criteria established by the VA are eligible for any type of VA-backed mortgage, including a VA cash-out refinance loan. To qualify, you must meet the following guidelines:

• Can get a certificate of eligibility (COE)
• Meet the VA’s and your lender’s minimum credit score requirements
• Have a debt-to-income (DTI) that meets your lender’s requirements
• Have equity built in your home
• Show a reliable income source
• Plan to live in the home you intend to refinance

We’ll take a look at these requirements below.

Obtaining a Certificate of Eligibility

You must obtain a COE before you can apply for a VA cash-out refinance loan in Utah. To qualify for a COE, you must meet the following requirements:

• You are a service member who has served on active duty for at least 90 consecutive days; or
• You are a veteran who served during a qualifying period of service; or
• You are a member of the National Guard or Reserves who has served between August 2, 1990, and the present or earlier and met the minimum active duty requirement of 90 days; or
• Are the surviving spouse of a veteran who met the service requirements; and
• If discharged from the Armed Forces, you had an honorable discharge

If you don’t meet the minimum service requirements, you might still be eligible if you were discharged because of one of the following:

• Hardship
• Served at least 20 months out of a two-year enlistment and was discharged for the government’s convenience
• Served at least 21 months out of a two-year enlistment and received an early out
• You were separated because of a reduction in force
• You received a medical discharge
• You suffered a service-connected disability

If you received an other-than-honorable, dishonorable, or bad conduct discharge, you likely will not qualify. However, you can apply for a discharge upgrade.

If you meet the eligibility requirements, you can request a COE online through the VA, through your lender, or by mail.

Meeting Minimum Credit Score Requirements

While the VA doesn’t set a minimum credit score, most lenders require borrowers to have at least 580 to 620 credit scores. Some lenders will approve you with a credit score between 580 and 620. However, most will only approve borrowers with minimum credit scores of at least 620.

Meeting Your Lender’s DTI Requirements

Banks look at your debt-to-income ratio when deciding whether to approve you for a mortgage. Most lenders rely on an automated underwriting system to determine your maximum debt ratio. While it may be much higher, some will require you to have a DTI of no greater than 41%.

Your DTI is the percentage of your monthly income used to pay credit cards, medical bills, student loans, auto loans, and housing costs, including your new mortgage payment.

Equity in Your Home

You need to have equity in your home to refinance. If you aren’t looking to tap into your equity but want to reduce your interest rate or obtain more favorable terms than your existing mortgage, you might consider a VA interest rate reduction refinance loan (VA IRRRL) loan instead.

Show You Have a Reliable, Regular Income Source

Your lender will require documentation showing you have a reliable and regular source of income. They might require you to submit the following documents:

• Income tax returns
• Paystubs/wage statements
• Profit and loss statements for self-employed people
• Bank statements

You’ll also need to show a valid and current government-issued identification.

Plan to Live in the Home

The VA requires you to live in the home you intend to refinance. You can’t get a VA cash-out refinance mortgage on a second home.

Benefits of a VA Cash Out Refinance vs. a Conventional Cash Out Refinance Loan

A VA cash out refinance mortgage offers several benefits vs. a conventional refinance loan, including the following:

• Lower interest rates
• Lower minimum credit score requirements
• Can access up to 100% of the equity in your home minus closing costs and fees
• No private mortgage insurance (PMI)
• No prepayment penalties

If you’re eligible for a VA cash-out refinance, it makes sense to choose this type of loan to access more of your equity while enjoying a lower rate of interest.

Cons of a VA Cash Out Refinance Loan

Utah VA cash out refinance loans do have a few cons, including:

• Not available to those who haven’t served or who aren’t surviving spouses
• Can only use it on your principal residence
• Funding fee applies, but it varies based on various factors and could be waived

Talk to the Mortgage Professionals at City Creek Mortgage

If you want to access the equity you have in your home and believe you are eligible for a Utah VA cash out refinance, contact the professionals at City Creek Mortgage. We can help you identify lenders with the best rates and walk you through the process. Call us at (801) 501-7950 to schedule an appointment.