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
How to Secure a VA Cash-Out Refinance Mortgage
To get a Utah VA cash out refinance loan, take the following steps:
Obtain a COE
Request a COE. You’ll need this before you can apply for a VA cash-out refinance loan. You can request it online or by mail or ask your lender to get it for you. The professionals at City Creek Mortgage can help you with this.
Choose a Lender
You’ll need to choose a lender that offers VA cash-out refinance loans. Once you’ve identified several, compare their rates and terms. The professionals at City Creek Mortgage can help you with this.
Submit Documents
You’ll need to submit documents requested by your lender. While this can vary, you can expect to be asked for two years of income tax returns, one year of bank statements, recent pay stubs, a copy of your COE, and other requested documents. The lender will verify your income and employment and will run a credit report. It will also evaluate your debt-to-income ratio to make sure you meet its minimum requirements.
Have Your Home Appraised
Your lender will schedule a home appraisal, which will be completed by an independent appraiser. Lenders do this to verify your home’s fair market value and determine the amount of equity you have in your home.
Attend Closing
You’ll attend closing and will need to sign multiple forms. You’ll also need to pay closing costs and the VA funding fee applicable to you, which can be taken out of your cash-back payment.
Receive Your Funds
You’ll receive the equity you want to take out of your home as a lump sum at closing minus your closing costs and fees. You can then use the money for whatever you want.
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.
FAQ
1. What can I use the money for from a Utah VA cash out refinance?
There are typically no restrictions on what you do with the money from a VA cash-out refinance. Most people choose to use the money to consolidate debts, complete home renovations, pay higher education expenses, or pay for unexpected emergencies. However, you can spend the money on anything you wish.
2. If I own my home free and clear, can I get a VA cash out refinance loan?
To qualify for a VA cash-out refinance, you’ll need to have a current VA or conventional mortgage on your property. If you own your home free and clear, you won’t be eligible for this type of loan. However, there might be other types of loans you can get.
3. What is the VA funding fee?
The VA doesn’t charge PMI, but it does charge a funding fee. This varies, but it typically is 2.15% for first-time VA borrowers and 3.3% for repeat borrowers. However, there are a few exemptions. Borrowers who have service-connected disabilities do not have to pay a funding fee, those who would receive disability benefits if they weren’t retired, Purple Heart recipients, surviving spouses, and others may be exempt from the funding fee.