Hello! This is Eric with Low VA Rates, and today we’re talking about the VA cash-out refinance loan of 100% LTV, or loan-to-value. Let’s jump right into it. First off, what is a VA cash-out loan? Well, imagine your home is like an ATM. Anytime you need money, you can go to an ATM and get some, so long as you have money in your checking account. The VA cash-out loan works the same way. In this case, your home is the ATM, and your equity is like a checking account.
Obviously, getting a VA cash-out loan is not quite as simple as using an ATM, but it’s the same principle. Cash-out loans allows veterans to pull all the equity they want right out of their home in the form of cold-hard cash. Other cash-out loans like those from FHA or conventional lenders may carry restrictions as to what you can do with the cash once you’ve borrowed it. But the VA cash-out loan carries no such restrictions; you can do whatever you want with the equity you pull out. For example, you can use it to pay off credit cards and other bills, consolidate debt, or make improvements to your home. But if you want it all in cash, you got it: the VA allows it, which means we at Low VA Rates do, too. Just keep in mind that there are lots of ways you can use the money to improve your financial situation.
Before we go any further, we have to understand what equity is. Equity is the difference between what your home is worth and what you owe the bank or mortgage company. Until you take advantage of a VA cash-out refinance, equity is simply a number. It’s like owning stock: say you bought a stock in Microsoft for one dollar, and today, it’s worth ten dollars. You might say that you’ve made all this extra money, but the truth is that until you sell that stock, you haven’t really made anything. The only value you have is on paper. Equity works the same way. For example, let’s say your home is worth $300,000 and you have a mortgage balance of $250,000. This means you’ve got $50,000 in equity in your home. But the question is: how do you get that $50,000s out? You don’t start stripping doors off your home, or tearing out the copper piping and selling it. Instead, you do a cash-out refinance to access that equity.
Now let’s explain what loan-to-value or LTV means. It’s well known that VA cash-out loans allow you to borrow up to 100 percent LTV (minus any closing costs you want to finance in), but what does that mean? First of all, LTV is a percentage. In the previous example, we said your home was worth $300,000 and that you had a mortgage balance of $250,000. To calculate our LTV, then, we take your mortgage balance and divide it by the appraised value of the home. In this case, we divide $250,000 by $300,000 and come up with 83.33% LTV or loan-to-value. Since VA cash-out loans allow you to borrow up to 100 percent of your LTV, you could use a cash-out loan to borrow the full $50,000 dollars in equity you have on your home. However, you can only borrow the full $50,000 if you pay the loan closing costs out of pocket. If you want to finance them in, the amount of cash you get goes down so your loan amount doesn’t exceed your home’s value. In other words, you can do whatever you want with 16.66 percent of your home’s value.
There are additional benefits of the VA cash-out loan that you should know about. First of all, the VA cash-out loan is the only government-backed loan that allows 100 percent of the cash to come out of your equity. Your military service earned you this right; FHA, conventional, or USDA borrowers don’t get this option. It’s just a kudos to you, and thank goodness the veterans in this country are taken care of in this way! You should get additional benefits. Here are some others: you don’t have to pay any mortgage insurance, which means you’ll have lower payments every single month, and you don’t have to meet a minimum FICO score requirement. The VA doesn’t care what your credit score is, so neither do we at Low VA Rates. We do have some other trainings on your YouTube page that will tell you how your credit score might come into play in other areas. And lastly, it’s easier to be approved for a VA cash-out loan than it is to be approved for a conventional one.
In closing, we just want to say thank you for your service, thank you for visiting our website, and please give us a call at 855-223-0705 if you have any questions about VA purchase or VA refinance options.