Different Types of Cash Out Refinance Home Loans

VA Cash Out Refinance

A VA cash out refinance loan allows borrowers to replace their current loan with a new one under different loan terms. A VA cash out refinance may help you pay off debt, pay for school tuition, make home improvements, take care of medical bills, or refinance a non-VA loan into a VA-backed loan.

A VA cash out refinance allows veterans, active-duty service members, and surviving spouses who qualify to receive up to 100% of the appraised value of their home. VA cash out refinance essentially replaces your old home loan with a government-backed loan or transfers your home equity into cash.

Eligibility

• Served on active duty for a minimum of 24 continuous months or mobilized for 90 days.
• Mobilized before August 1, 1990, for at least 181 days.
• Provided 6 years of creditable service in the Reserves or National Guard or at least 90 days under Title 10 or Title 32, with at least 30 being consecutive.
• Service time requirements may be waived if you were medically discharged.
• Been the surviving spouse of a service member who died in the line of duty.

When discussing this type of cash out refinance with your lender, be sure to give them a copy of a Department of Veteran Affairs Certificate of Eligibility (COE), which confirms that you have met the minimum requirements necessary to qualify for the loan.

VA cash out refinances are normally considered less risky by lenders and rates are typically lower than conventional cash out refinances. VA cash out refinance loans can be a great opportunity for eligible borrowers to help fund repairs, renovations, retirement, or educational expenses.

FHA Cash Out Refinance

An FHA cash out refinance is a loan option that allows borrowers to borrow more than they currently owe on their home and pocket the difference. FHA cash out refinance lets you refinance up to 80% of your home’s value to cash out your home’s equity to use on various expenses.

Eligibility

FHA cash out refinance is more lenient with their credit score requirements.

• Credit score of at least 600 for more lenders.
• More than 20% equity already in the home.
• On-time mortgage payments for the past 12 months.

FHA cash out refinances require an upfront and monthly mortgage insurance premium which is equal to about 1.75% of the new loan amount upfront and 0.85% of the loan amount yearly, paid over 12 months.

Conventional Cash Out Refinance

Just like the other cash out refinance options, a conventional cash out refinance allows you to get cash from your home’s equity by replacing your old mortgage. A conventional cash out refinance will usually depend on your loan-to-value ratio which will affect whether you qualify for financing. To calculate loan-to-value ratio, you take the amount of your current mortgage loan divided by the appraised value of your home. For most lenders, the maximum LTV for a conventional cash out refinance is around 80%.

Eligibility

The eligibility process for conventional cash out refinances are very similar to a traditional conventional loan. Many lenders require a higher credit score for cash out refinance options as well as an LTV of no more than 80%, leaving 20% equity still in the home.

Jumbo Cash Out Refinance

A jumbo loan is a high-value loan used to buy a home that exceeds the conforming loan limits. Because there is much more money involved in jumbo loans, lenders may be a bit pickier with the loans they decide to refinance due to the risk involved.

Eligibility

To do a cash-out refinance on a jumbo loan, borrowers will have to provide extra documentation and meet higher standards than a traditional mortgage would require.

• Credit score: The exact credit score you will need to qualify for a jumbo loan refinance will depend on the loan terms.
• Cash reserves: Lenders need to know that you have enough money coming in to cover your monthly payments.

Jumbo cash out refinances also come with higher closing costs because of their higher principal balances. Expect to pay around 2%-6% of your total loan value in closing costs when you refinance a jumbo loan. The jumbo loan refinance process may also take longer than a traditional loan because it needs to go through manual underwriting.

USDA Cash Out Refinance

United States Department of Agriculture loans are a great option for low to medium-income homebuyers with their $0 down and lenient eligibility requirements. USDA loans offer three options for refinancing including USDA streamline refinance, USDA streamline-assist, and a non-streamlined refinance. Unfortunately, USDA loans do not allow for cash out refinance options. To tap into your home equity, you will have to refinance your USDA loan to a conventional loan or FHA loan to access the cash. Most lenders require a credit score of at least 620 and more than 20% equity in the home.