VA cash-out refinance lets veterans pull equity from their primary residence at up to 100% LTV. This is the most aggressive cash-out structure available in agency lending. But the seasoning requirements, loan classification rules, and net tangible benefit documentation add complexity that MLOs must handle correctly.
Type I vs Type II Classification
The Protecting Veterans from Predatory Lending Act created two categories. Type I: the new loan amount does not exceed the existing VA loan balance. No true equity extraction occurs; this is functionally a rate/term refinance. Type II: the new loan exceeds the existing VA loan balance, meaning cash is actually being taken out. Both require the same documentation and seasoning, but the distinction affects how the net tangible benefit is documented and how lenders price and underwrite the transaction.
Seasoning Requirements
- ✦Minimum 6 monthly payments made on the loan being refinanced
- ✦At least 210 days must have passed since the first payment due date of the loan being refinanced
- ✦Both conditions must be met simultaneously; the longer of the two governs
- ✦If the loan being refinanced is not a VA loan, seasoning still applies based on the first payment date of that loan
Net Tangible Benefit
VA requires the lender to document that the cash-out refinance provides a net tangible benefit to the veteran. For Type I, this typically means a meaningful rate reduction or term improvement. For Type II, documentation of the use of proceeds (debt payoff, home improvement, emergency expense) satisfies the benefit requirement in most cases. The lender must retain net tangible benefit documentation in the loan file.
Funding Fee and Lender Overlays
The funding fee for VA cash-out is 2.15% for first use and 3.30% for subsequent use, with no tiered structure based on down payment. Many lenders overlay a maximum LTV of 90% even though VA permits 100%. FICO minimums vary; most lenders require 580 to 640. Confirm your lender's specific overlay before structuring a VA cash-out.
Aria can verify VA cash-out seasoning status for any loan scenario and outline net tangible benefit documentation requirements. Ask at vicariointel.com.
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