A VA-backed cash-out refinance loan lets you replace your current loan with a new one under different terms. If you want to take cash out of your home equity or refinance a non-VA loan into a VA-backed loan, a VA-backed cash-out refinance loan may be right for you. Find out if you’re eligible—and how to apply for your Certificate of Eligibility. You may be eligible for this type of loan if you meet all of these requirements. All of these must be true: Find out if you qualify for a VA-backed home loan Certificate of Eligibility (COE) You’ll go through a private bank, mortgage company, or credit union—not directly through us—to get a cash-out refinance loan. Terms and fees may vary, so contact several lenders to check out your options. Note: Be careful when considering
home loan refinance offers. Claims that you can skip payments or get very low interest rates or other terms that sound too good to be true may be signs of a misleading offer. You’ll need to show your COE to your lender as proof that you qualify for the home loan benefit. In addition to your COE, you’ll need to give your lender: Note: The lender will order a home appraisal, an expert assessment of the value of your home. You may need to pay a VA funding fee at closing. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly
mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees. Am I eligible for a VA-backed cash-out refinance loan?
Why might I want to get a VA-backed cash-out refinance loan?
How can I get a VA-backed cash-out refinance loan?
Find a lender.
Learn more about the signs of misleading refinance offersRequest
your Certificate of Eligibility (COE).
Find out if you qualify for a COE
Request your COE nowGive your lender any needed information.
Follow your lender’s process for closing on the loan, and pay your closing costs.
Learn about the VA funding fee and other closing costs
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. By refinancing your mortgage, total finance charges may be higher over the life of the loan.
Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."
Refinancing allows homeowners to replace their existing mortgage with a new home loan offering better terms. If you’re not looking to take out any equity, you’ll want to apply for a limited cash-out refinance or a no cash-out refinance.
Despite their different names, a limited cash-out refinance and a no cash-out refinance are actually the same thing: a rate-and-term refinance.
Here’s how the two refinance types differ further, and when it makes sense to choose one over the other:
- What is a limited cash-out refinance?
- What is a no cash-out refinance?
- When does a limited cash-out refinance make sense?
- When does a no cash-out refinance make sense?
- Choosing between a limited cash-out and no cash-out refinance
What is a limited cash-out refinance?
A limited cash-out refinance replaces your existing mortgage loan with a new loan having a lower interest rate, shorter term, or both. For example, you might replace your 30-year, fixed-rate mortgage that has a 4% interest rate with a 30-year, fixed-rate mortgage at 3% or with a 15-year, fixed-rate mortgage at 2.5%.
Good to know: A limited cash-out refinance allows you to incorporate the closing costs (including points and prepaid items) into the new mortgage. It also allows you to get a small amount of cash back.
The key difference between a limited cash-out refinance and a no cash-out refinance is that a limited cash-out refinance has guidelines set by Fannie Mae. Per Fannie Mae’s rules, the cash-back amount is limited to 2% of the new loan balance or $2,000, whichever is less.
By contrast, a regular cash-out refinance can put tens of thousands of dollars in your bank account, depending on how much equity you have. Your new loan will be much larger than your old loan as a result.
With a limited cash-out refinance, your new loan may only be a few thousand dollars larger than your old loan to account for financed closing costs and the modest cash-back amount.
What is a no cash-out refinance?
A no cash-out refinance also allows borrowers to replace their existing mortgage with a new one that has a different interest rate and/or different term. Like a limited cash-out refinance, you can roll your closing costs (including points and prepaid items) into your new loan and, despite what the name implies, get a small amount of cash back — albeit with use restrictions.
No cash-out refinance guidelines are set by Freddie Mac. Per Freddie Mac’s rules, the cash-back amount on a no cash-out refinance can be up to the greater of 1% of the new mortgage or $2,000. So, just as with a limited cash-out refinance, your new loan may be a few thousand dollars larger than your old loan.
Tip: An alternative to rolling closing costs into your loan is a no-closing-cost refinance. In this case, the lender typically pays your closing costs and gives you a higher interest rate. Either way, not paying closing costs up front increases your borrowing costs.
It’s smart to get at least three loan estimates for your mortgage refinance to see which lender can offer you the best interest rate and lowest fees. Credible helps streamline this process by allowing you to compare prequalified rates from all of our partner lenders in just a few minutes.
Freddie Mac’s guidelines for a no cash-out refinance are slightly more generous to many borrowers. If you’re borrowing more than $200,000 or less than $80,000, Freddie Mac allows you to get more cash back on a rate-and-term refinance than Fannie Mae.
Tip: That said, taking advantage of the small cash-back amount offered by a rate-and-term refinance to save on interest in the long run might not be the best deal.
Instead, you may want to take care of closing costs upfront rather than rolling them into your new loan. Paying closing costs for your refinance up front can be a smart choice when you plan to keep your mortgage for several years. By financing as little as possible, you’ll pay less mortgage interest in the long run.