Cash-Out Basics

• You can use a cash-out VA loan to pay off existing liens that are current or delinquent, and you can use the remaining proceeds for any other legal purpose. On refinance loans that involve no cash-out, you can only refinance with a VA guarantee if the new loan results in a lower interest rate. However, the VA does not have any rules in place with regard to interest rates on cash-out loans. Aside from refinancing standard mortgages, you can use a cash-out loan to refinance a construction loan or to refinance a VA loan that you assumed from another borrower.
  
  

Limits

• You can extract 100 percent of the equity in your home with a VA cash-out refinance loan, whereas with a conventional cash-out refinance, your loan-to-value cannot exceed 80 percent. The VA does not impose loan limits on cash-out loans, but it does impose a loan guarantee maximum, which, as of 2011, is up to $36,000 on refinance loans. The loan guarantee reflects the amount of coverage the VA provides for the lender in the event of borrower default.
  
  

Loan Details

• On a VA cash-out refinance, your loan term cannot extend beyond 30 years and 32 days. You can roll closing costs into the loan amount. You can also add the cost of energy efficient upgrades to your home and the VA funding fee into the financed amount. The VA funding fee goes into the loan guarantee fund that the lender uses to insure loans. The lender can charge discount points, which are prepaid interest charges and origination points, which are processing fees.
  
  

Other Considerations

• You can only secure a VA backed cash-out refinance loan to your actual residence and not a rental property. You must pay for an appraisal of your home, and you can contest the initial appraisal if the valuation comes back short. However, although the VA does offer no-appraisal straight refinance loans, it does not offer streamline cash-out loans that involve no appraisal. The VA does not impose credit score minimums, but lenders do, and lenders typically require you to have a credit score of 620 or higher in order to qualify for a loan.