You may have heard of people taking out a second mortgage on their house to get cash to help pay bills, send a kid to college, or make home improvements. The VA's Cash Out & Refinance option is similar to a second mortgage but a much better deal.
The program is similar because it gives you cash based on the equity in your home, but the similarity ends there, instead of having 2 mortgages, one on the original value and one on the equity, you will just have one mortgage for the entire value of your house. This usually gives you a lower interest rate - at least 2 - 3% lower than a 2nd mortgage - and makes your monthly payments and tax prep much easier.
Equity is the value of your ownership of your home. For example, if you bought your house for $175,000 and have been making payments so that you only owe the bank $125,000 you would have $50,000 equity. Likewise, if you bought a house for $200,000 and it is now worth $220,000 due to and improved housing market, you would have an equity increase of $20,000.
The cash out & refinance option can give you cash based on the your equity. For example, if your home is worth $200,000 and you owe $100,000 on your loan you can get a new VA loan for $200,000, pay off your first $100,000 loan and pocket the remaining $100,000. You can refinance an existing VA loan or a non-VA loan.
You must find your own lender, pay all fees, and provide all necessary paperwork, just like getting a first mortgage. You will also need a valid VA Loan Certificate of Eligibility.
Yes, there is a bit of work involved in the VA Cash Out & Refinance Loan, however it could possibly save you thousands every year over a 2nd mortgage and give you much needed cash, should you need it.