VA Cash-Out Guidelines

VA Cash-Out Guidelines UPDATE on VA Loans For Homeowners

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will discuss and cover the VA cash-out guidelines on VA mortgages. The booming housing market has created concern for the Veterans Affairs Department where they have lowered the loan-to-value from 100% to 90% LTV on VA loans. HUD, the parent of FHA, has also lowered cash-out loan-to-value on FHA loans from 85% to 80% LTV.

Both agencies were concerned with the skyrocketing home prices and wanted to avoid homeowners being leveraged up to the maximum in the event of a housing correction. Fannie Mae and Freddie Mac took no change in changing the loan-to-value on conventional loans and still remain at 80% LTV on cash-out refinance conventional loans. 

Understanding the Basics of VA Loans

VA loans are hands down the best mortgage program in the nation. VA loans do not require any down payment. Lenders allow 100% financing at competitive rates. There is no maximum loan limit on VA loans. There is no mortgage insurance premium requirement on VA loans. However, only active and/or retired members of the United States Military are eligible to qualify on VA loans. 

VA Agency Mortgage Guidelines UPDATE

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VA Cash-Out Guidelines 2023 UPDATE: If you are a frequent reader of Gustan Cho Associates, you will hear us reference ever-changing VA cash-out guidelines. Well, once again the Department of Veterans Affairs has changed the mortgage guidelines for VA Cash-Out Guidelines. The changes go into effect on February 15th, 2019. By the time you’re reading this, these changes will be in effect.

Types of VA Refinance Mortgage Loans

There are now two types of VA refinances. In this blog, we will detail both types. Back on December 19, 2018, the Department of Veterans Affairs released Circular 26-18-30 to announce these changes. The VA published a final rule addressing the guaranty requirements for  VA Cash-Out Guidelines for refinance loans. One thing to note, the changes also address refinancing construction-to-permanent loans.

VA Cash out Guidelines Update

New VA Agency Guidelines UPDATE For Homeowners 

The new rules are in effect for any application taken on or after February 15th, 2019. VA now has three types of refinance loans.

  • An interest rate reduction refinancing loan (IRRRL)
  • TYPE 1 Cash-Out Refinance
  • TYPE 2 Cash-Out Refinance

VA IRRRL Guidelines

  • A type of loan made to refinance an existing VA loan into a lower interest rate without taking cash out

TYPE 1 Refinance

  • When refinancing a loan in which the loan amount does not exceed the payoff amount of the loan being refinanced
  • The loan amount will also include the VA funding fee

TYPE 2 Refinance

  • When refinancing a loan in which the loan amount exceeds the payoff amount for the loan being refinanced
  • Once again, the loan amount will include the VA funding fee

NOTE-The new rule does not apply to IRRRLs, updates on IRRRL regulations will come out in the future. For now, lenders are to continue to use VA policy guidance from VA Circular 26-18-13.

VA Cash-Out Guidelines On Loan-To-Value on VA Loans

Loan to Value (LTV) requirements are part of the new regulations put in place on February 15th, 2019. This is one of the largest changes we have seen on VA loans in a long time. Under the new regulations, the VA will no longer guarantee to refinance loans where the LTV exceeds 100%. This includes the funding fee. For a veteran to close on a loan in which the loan amount exceeds 100% of the value of the property, the veteran must pay the amount over the appraised value. Long story short, you can still do them, but you must pay out of pocket for any amount above 100% loan to value

OLD RULE allowed funding fee to be financed in with a total loan to value of 103.3%:

Example of the new regulation:

  • Refinance loan amount – $200,000
  • Funding fee – $6,600

TOTAL refinance loan amount – $206,600

Appraised Value – $200,000

Under the new guidelines, the total loan amount on the refinance loan may not exceed $200,000. The veteran must pay the funding fee out-of-pocket. It will no longer be financed into a loan above 100% loan to value. In order to finance the funding fee into the loan, the total loan amount including the funding fee cannot exceed $200,000.

How To Calculate Loan-To-Value

How to calculate loan to value:

Total loan amount (INCLUDING funding fee divided by appraised value.


VA Cash-Out Guidelines on Net Tangible Benefit Test

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As part of the new guidelines, the veteran now must pass a net tangible benefit test. This sounds like a complete overhaul, but really, it’s not a big change. Lenders must ensure their refinance is in the best interest of the borrower. Below is a list set by the Office of Veterans Affairs on what is required to pass the net tangible benefit test.

Passing The Net Tangible Test on VA Refinance Loans

You must satisfy at least one of the following eight net tangible benefits. The new loan eliminates monthly mortgage insurance. Lowering the term of the loan (for example, refinancing from a 30-year fixed to a 20-year fixed). Obtaining a lower interest rate on a new loan. Obtaining a lower payment on a new loan. The new loan results in an increase in Veterans’ residual income. The new loan refinance is an interim loan to build (construct). Alter, and repair their home. The new loan is equal to or less than 90% LTV (loan to value). Refinancing from an adjustable-rate to a fixed-rate mortgage.

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VA Cash-Out Guidelines on Net Tangible Benefit To The Borrower

Your lender will send you a net tangible benefit document as part of your disclosure package. You will sign off on how the new refinance loan benefits your financial situation. This will include key features of your new loan such as fixed rate, loan term, loan to value, and a comparison against your old loan. You will also document how utilizing the equity in your home will affect the veteran.

VA Refinance Lending Guidelines On Seasoning Requirements

Loan seasoning requirements are also part of the February 15th, 2019 update. The VA will not guarantee the new refinance loan if the loan being refinance has not been properly seasoned. This requirement applies to TYPE 1 refinance loans made to refinance an existing VA-guaranteed home loan AND all TYPE 2 refinancing loans. Below are the requirements for the loan to be considered seasoned:

  • At least 210 days have passed since the first payment was made
  • And at least six monthly payments have been made on the loan being refinanced

Fee Recoupment Update:

  • Are part of the new legislature, their recruitment
  • All fees including closing costs and Loan, expenses must not exceed 36 months from the date of closing
  • The lender must certify the recruitment
  • To the office, of veterans Affairs to receive a loan guarantee certificate
  • Keep in mind this does not include taxes, insurance, and any like assessments (escrow)
  • Best recruitment policy only applies to TYPE 1 cash-out refinancing loans made to refinance an existing VA-guaranteed mortgage

Your lender will complete a recoupment calculation. See below:

  • Divide all fees, closing costs, expenses, and any incurred costs by the reduction of the monthly principal and interest payment on the new refinance loan
  • Once again, this does not include taxes, insurance, and any like assessments escrow
  • If the loan being refinance has been modified, the principal and interest reduction must be computed and compared to the modified principal and interest monthly payment

VA Mortgage Lender With No Overlays on VA Cash-Out Guidelines

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The information provided in this blog is considered to be current up to April 26th, 2021.  Gustan Cho Associates pride itself on being up-to-date on all mortgage guidelines. This may sound like gibberish to you, we understand that and encourage you to reach out with questions. We are experts in VA mortgage financing.

We helped hundreds of veterans each and every year. If you are in the market for a cash-out VA loan, please reach out to Mike Gracz at (800) 900-8569 or text us for a faster response. Or email us at We are a full-service lender without mortgage overlays on all conventional, FHA, and VA mortgages. We are available for questions 7 days a week. No question is too small to ask, we look forward to hearing from you.

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  1. What documentation do you have that confirms this information? I cannot find a single VA circular that states the change from 100% LTV to 90% LTV for VA cash-out refis.

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