Unlock Your Home’s Potential with Cash Out Refinancing for Home Improvements

Should You Do Cash Out Refinancing for Home Improvements or Get a Home Equity Loan?

Are you considering making home improvements this year? Maybe you want to update your decor, redo your deck, or take on a project like a kitchen renovation. You may have been contemplating home improvements for a while, or maybe more time at home during the pandemic got you thinking about ways you can update your house. Either way, you’ll need funding for these projects.

In this article, we’ll explain ways you can use your VA home loan to generate extra income for home renovations. We’ll cover cash-out refinancing, home equity loans (second mortgages), and home equity lines of credit (or HELOCs). Stick around to read about the pros and cons of each of these options, plus our recommendation based on our lending expertise!

Should You Refinance with Cash Out for Home Improvement Projects?

A cash-out refinance is a great option for home improvements. By definition, a cash-out refinance takes cash out of your loan for you to keep. How does this work? When you get a cash-out refinance loan, you get a loan amount that is actually greater than the amount you still need to pay off on your current home mortgage. Say you owe $100,000 on your home. A cash-out refinance would get you a loan amount of more than $100,000. For example, you might get a loan for $125,000. This means you can keep the $25,000 (minus loan closing costs) and put it toward those home improvements!

“We had a great experience applying for a VA loan with HomePromise.” – Martha W.

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VA Debt Consolidation Loans & Military Debt Consolidation

Even with the best of intentions, bills can start to pile up. From unexpected medical bills to high interest credit cards, debt can happen to anyone. Other expenses like college tuition, delinquent taxes, and second mortgages can also cause financial stress. For veterans and military families currently experiencing financial difficulties, VA military debt consolidation loans can help.

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The great thing about a cash-out refinance is that the Department of Veteran’s Affairs requires that it benefit you. A cash-out refinance loan must give the borrower a net tangible benefit as specified by the VA’s cash-out refinance quick guide. This could mean you’re able to pay off your mortgage faster, have lower monthly payments, get rid of monthly mortgage insurance or reduce your interest rate.

However, a cash-out refinance isn’t the only way to fund your home improvement dreams. Keep reading to hear more about home equity loans and HELOCs!

Cash Out Refinancing vs. Home Equity Loan

There are a lot of similarities between a cash-out refinance loan and a home equity loan. They are both based on equity, or the portion of your home that you own and are not currently paying off. If you’ve been paying off your home for a long time, you’ll have paid off a solid amount of your current mortgage, which means you have significant equity in the home. Another source of equity is appreciation of your home’s value. 2021 is a seller’s market, which means homes are appreciating in value nicely. Chances are, if you’ve owned your home for several years you may have equity in your home right now! This makes 2021 a great time to take advantage of either of these options get cash out.

A cash-out refinance loan and a home equity loan both get you money to use at your discretion at closing. Both are great for funding your dream home improvement project! You’ll need to remember that you have to pay for closing costs. In either caseBut, if you work with a VA lender like HomePromise , qualifying for a VA loan means that you may be able to borrow 100% of your home’s value. It’s worth noting that most VA lenders will cap the value you can borrow at 90% or lower. But HomePromise may approve you for 100% of your home’s value! A home equity lender may cap you at 80%, 75% or even lower.

A cash-out refinance is unique because, like any refinance, it replaces your current home loan. Because they are backed by the VA, cash-out refinances typically come with low competitive interest rates that may lower your monthly payments. Another great feature of a VA cash-out refinance is that you can use it to convert a non-VA loan to a VA loan.

A home equity loan is actually a second loan on your home. Rather than a refinance, it adds a second loan to your property. When compared to a cash-out refinance, it usually comes with higher interest rates, than VA mortgages since second loans often have higher interest rates than first loans. Also, the term of a second mortgage may be much shorter than a VA loan which is allowed to be a 30 year mortgage. Some home equity lenders restrict you to a 15- year loan or even a 5- or 10- year loan. That makes your mortgage payment on a home equity loan much higher than a 30- year VA loan. Here, cash-out refinances have the advantage, because they count as the first loan on the property.

But the options don’t stop there. Another possibility that you may have heard of is a HELOC, or a home equity line of credit. In the next section, we’ll explain how HELOCs compare to cash-out refinances and home equity loans.

Home Equity Loans and HELOCs vs. Cash Out Refinancing

Just like cash-out refinances and home equity loans, HELOCs are based on the equity in your home. But HELOCs are more similar to home equity loans than cash-out refinances. That’s because a HELOC is not the primary loan on your property – like a home equity loan, you would get a HELOC in addition to your current mortgage because it is considered a second mortgage.

Functionally, home equity loans and HELOCs work differently. Home equity loans give you a lump sum of money at closing, which you are then able to use for your home improvements. A HELOC is just what it sounds like – a line of credit. That means you have a credit limit and you can borrow as much as you want up to that limit. But you don’t get that money up front. Instead, yYou’re given a draw period, which is a length of time (for example, five or ten years) during which you can borrow up to your credit limit. The only requirement for this is that you make interest only payments during the draw period and stay below your credit limit. This might sound nice;, since you can determine how much money you actually need to borrow for your home improvements as time goes on. But once that draw period is over, you’ll have to start paying back what you’ve borrowed. Typically, these payments are pretty big, and borrowers often struggle to make them. I’m sure you’re wondering how big the payments can get. Well, you may see your payment double or triple when the draw period is over.

In terms of financial implications, a big difference between a home equity loan and a HELOC comes down to interest rates. A home equity loan has a fixed interest rate and fixed monthly payments, which means your payment won’t change over the loan term. But a HELOC has a variable interest rate. On top of the increased monthly payment after the draw period, for many HELOCs your lender could actually increase your interest rate at any time. This means you could be stuck paying huge big monthly payments that you didn’t anticipate.

We recommend that, whatever you decide, be very cautious with HELOCs. They are just too risky for the most borrowers. Even if you are very confident in your ability to budget for increased monthly payments after your draw period, the variable interest rate of HELOCs means that home equity loans and cash-out refinances are a better option.

Why Cashing Out is Easier for Most People

When it comes down to it, we recommend you look into a cash-out refinance loan first. When compared to a home equity loan, it usually offers better interest rates. Plus, refinancing and getting a new first mortgage instead of getting a second loan means you only have one home loan to worry about, which simplifies the process. Now is a great time to take advantage of low interest rates and improved home equity thanks to home appreciation in 2021. All in all, a cash-out refinance is both an easier and smarter financial decision to fund your home improvements.

Cash Out Refinance with HomePromise

When looking for a lender to help you fund your home improvements, look to us first! At HomePromise, we are committed to understanding your unique situation. Plus, we have been known to lend provide Veterans and active duty service members with a 100% loan-to-value cash-out refinance option that most lenders don’t have. This means you may receive more funds from your cash-out loan with us than with other lenders. Prequalify with us today to get a sense of what we can may be able to do for you.

Even if you are not sold on a cash-out refinance over a home equity loan, we recommend you call now at 800-720-0250 to speak with our home loan experts! We are here to answer your questions. Applying with us is always free – that’s the HomePromise Way.

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Make The Most Of Your VA Loan Benefits With These Cash Out Loan Facts

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VA Cash Out Loan Facts For 2023

What is a cash-out refinance? A cash-out refinance (or cash-out refi) replaces your current home loan with a new home loan according to the VA home loan program. This new loan equals more than you owe on your home, which means that you get to pocket the difference. So, if you owe $100,000 on your home and you get a cash-out refinance loan, you will receive a loan for more than $100,000. This is great for you! For both military members and Veterans eligible for VA home loan benefits, this type of loan may offer more options for refinancing than conventional loans.

In this article, we’ll explain current information on cash-out refinance loans. Every year is a little bit different, so it’s important to stay up-to-date on the facts about cash-out refinance loans. Read on to learn more!

What is a VA Cash Out Refinance Loan?

At this point, we’ve explained that a cash-out refinance replaces your existing mortgage with a new one that allows you to keep some extra cash. But did you know that there are two types of cash-out loans?

A type I cash-out refinance doesn’t actually get you any cash to pocket when you close the loan. It’s called a cash-out refinance more because of convention than anything else. However, this is often still a worthwhile decision, because it lowers monthly mortgage payments. According to the Department of Veteran’s Affairs, one loan term is that you also must be able to cover the costs of the refinance within three years of closing. Costs could include closing costs, your VA funding fee, and mortgage insurance. This means that if you pay $2,000 in fees to refinance, the refinance must save you at least $2,000 on your monthly payments in the three years after closing. You can also refinance a non-VA loan to a VA loan with a type I cash-out refinance, which in most cases will also save you money.

“I am so happy that I chose HomePromise for my first time buying a home!!” Brittany W.

VA Debt Consolidation Loans & Military Debt Consolidation

Even with the best of intentions, bills can start to pile up. From unexpected medical bills to high interest credit cards, debt can happen to anyone. Other expenses like college tuition, delinquent taxes, and second mortgages can also cause financial stress. For veterans and military families currently experiencing financial difficulties, VA military debt consolidation loans can help.

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A type II cash-out refinance is the kind of refinance option that we’ve already described. When you get this kind of loan, you receive a larger loan amount than you need to pay off on your home, so you pocket the difference. Like type I cash-out refinances, you can get a type II cash-out refinance on a non-VA loan, converting it to a VA loan and pocketing the difference.

What Are the VA Cash Out Loan Requirements?

To qualify for a VA cash-out refinance, you need to demonstrate that you qualify for a VA loan and provide your lender with financial documentation. To prove that you are a qualified Veteran, you’ll need a Certificate of Eligibility. To get one, you can apply at eBenefits, a service of the VA. You can check the VA website to see if your military service or service-connected disability qualifies you for VA benefits. You’ll also be asked for information on your income, debt, and taxes.

Your credit score and debt-to-income ratio also matter when applying for a cash-out refinance. Many lenders prefer credit scores of 680 or higher, but at HomePromise, we do loans for people with challenging credit histories! If you’re worried about qualifying with a low credit score, contact us now at 1-800-720-0250 to apply for free!

Is a VA Cash Out Loan a Good Idea?

On paper, a VA cash out loan sounds great. But anytime you refinance, it takes time and effort from you. So what, besides that bonus cash, makes the cash-out loan a good idea?

One great reason to get a cash-out refinance loan is the fact that you can actually consolidate debt this way. Here’s how: when you get that cash, you can use it to pay off debts like high credit card debt. Of course, you will still have some debt, since your mortgage represents what you still owe on your house. But rather than having multiple sources of debt to manage, you can pay off other debts with the cash and focus on your mortgage debt. Plus, the interest rates on your mortgage payments will almost always be lower than other debt payments, like credit card debt. Now you can be paying off debt with just one payment a month, toward your mortgage. In the end, this saves you money and simplifies your financial situation.

Another great reason to get a cash-out refinance loan is because you can use that cash to add value to your home. Whether you want to refresh the design of your home or renovate your kitchen, extra cash allows you to make home improvements. Plus, with those updates, your home is worth more!

Of course, you can also use cash from a cash-out refinance loan at your discretion. Maybe you want to use some to support family members like parents or grandparents, or you’re hoping to put it into a business venture. Regardless, it’s hard to argue with a loan that gets you cash at closing.

What is the Max Cash Out On A VA Cash Out Loan?

Your max cash-out typically depends on your loan-to-value ratio. A loan-to-value ratio is based on how much of your home you already own. In other words, it depends on the equity in your home. For example, if your home is worth $350,000 and your current mortgage is for $200,000, your mortgage is for 57% of your home value. That means that the other 43% of your home value is officially yours. When you get a type II cash-out refinance, you’ll get a mortgage refinance for a greater percentage of your home value. So if you go from your $200,000 mortgage to a $250,000 mortgage, you’re receiving a loan that is 71% of your home value. The loan-to-value ratio for your refinance would be 71%. If you choose to make a down payment, that will lower your loan-to-value ratio.

Every lender is different, but most VA lenders will not approve a cash-out refinance that has a loan-to-value ratio of higher than 90%. In fact, many lenders will actually cap their loan-to-value ratio at a number even lower than that. Why would lenders do this? Because a high loan-to-value ratio is riskier, simply because it is more money. A higher loan-to-value ratio also means that you are making a smaller down payment, which is also riskier for the lender. The VA guarantees your lender a certain amount of any loan if the borrower defaults, but there is a limit to how much a lender could get back.

At HomePromise, we approach things a little differently. We are actually willing to make 100% loan-to-value loans, which means that if you qualify, you could get a cash-out refinance for 100% of your home value without making a down payment. In the example above, that would mean you could receive $350,000 at closing.

Get a 100% VA Cash Out Loan – Refinance with Us!

So how do you know if you qualify? It’s fast and easy to find out. You can call us at 800-720-0250 to speak with a cash-out refinance expert. Applying with us is always free, so you have nothing to lose by giving us a call! We are committed to working with you and understanding your unique situation. That’s the HomePromise Way.

Unlock the Benefits of a VA Loan with Prequalification

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VA Loan Prequalification

If you are an active-duty military member or a Veteran of the armed forces or national guard, you may qualify for VA home loan benefits as specified by the Department of Veterans Affairs. As you consider applying for a VA home loan, you may have heard of VA loan prequalification. Prequalification is a process that gives you an idea of how much a VA purchase lender is willing to loan to you, based on your credit score and other factors. It’s not a guarantee, but it can mean you are likely to get a loan from the lender, and it simplifies the process when you do apply for a loan. Something else to remember is that prequalification is not the same as applying for a loan. You may also be wondering how prequalification is different from VA loan preapproval. At HomePromise, we use the term prequalification but our prequalification is similar to what others call a preapproval. We’ll explain the goals of prequalification, how it makes applying for a VA purchase loan easier, and more in this article!

Make Your Homeownership Dreams Come True – Lower Your Funding Fee

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How To Lower Your VA Funding Fee While Avoiding VA Adjustable Rate Mortgages

One of the most attractive things about VA loans is that you are not required to make a down payment. Because VA loans are backed by the U.S. Department of Veterans Affairs, the down payment is optional. But if you make no down payment or a very small down payment, that will affect your VA funding fee. Essentially, when buying a house, the lower your down payment, the higher your funding fee. So, there’s a downside to making a small down payment on your VA loan.

But there are ways to lower your VA funding fee. You may even be able avoid it completely if you’re eligible to receive VA compensation for a service-connected disability, since there are funding fee exemptions for Veterans. In this article, we’ll explain how to lower or avoid your funding fee, plus give you more tips and tricks to lower your VA mortgage costs. In particular, we’ll go over the big differences between a 15-year mortgage and a 30-year mortgage, plus let you in on the truth about adjustable rate mortgages.

How To Get A VA Loan For An Investment Property

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How to Get a VA Loan for an Investment Property

For eligible Veterans, getting approved for an investment property is worth it. By turning your primary residence into a rental property to generate income, an investment property VA mortgage can help make the mortgage payment for you, which will benefit you, the military service member, and your family, who may be military dependents.

What Are the Options for Getting a VA Loan for an Investment Property with HomePromise?

There are only two ways to get an investment property with a VA mortgage lender. If you don’t want to live on the property while renting it, then you’ll need to buy a home, live in it for one year, and then move out and rent it. Your other option is to purchase a 2-4 unit multi-family home and rent it out while living in one unit. This kind of investment property needs to be owner-occupied.

There are some unique challenges in finding a lender willing to finance an investment VA loan. The first challenge Veterans may face is that some VA lenders only finance single-family homes even though the Department of Veterans Affairs permits financing on multi-unit properties with up to four units.

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VA Loan Requirements

The VA Home Loan benefit is one of the most significant benefits for active military members and Veterans. A VA Home Loan comes with financial benefits for qualified Veterans. The VA loan income guidelines and credit score for VA loan approval are more flexible than other home loan programs. For many Veterans, the VA Home Loan benefit is their only option for owning a home.

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Another challenge is that many lenders have strict guidelines for calculating the income from rented units. This situation usually results in a denial or the lender forces the Veteran to receive a smaller loan amount.

How To Get A VA Loan For An Investment Property

If you decide to purchase a multi-family home with multiple units, we are here to help! The VA guidelines for calculating income earned from rental units are generous. With HomePromise, we make it easier for Veterans and active military members to qualify. The secret is finding a lender, like HomePromise, who uses just the VA government guidelines to approve VA loans. Other lenders use their own guidelines on top of the VA guidelines, making it hard to qualify. Why would a lender do this? Because they are afraid that making loans strictly according to the VA guidelines is too risky. With us, you don’t have to worry about strict guidelines that block you from accessing your VA Home Loan benefits.

If you decide to purchase a single-family home, live in it, and then move out so you can rent it, HomePromise can also help! It is possible to have two VA loans at once, so you can buy and live in another home with a VA loan while using your first property as a rental. To do this, you’ll need to qualify with your income and credit score. Don’t give up if you’re worried about your credit score! HomePromise approves loans for people with low credit scores when other lenders will not. Plus, we are VA mortgage experts, so you can use our website as your personal mortgage research center.

Are Investment Properties A Good Idea?

The ability to earn income from the home you call your principal residence is a huge benefit for a multifamily home. You can get the same benefit from a home that you don’t want to sell, even if you move somewhere else. That investment is made even better when you can use your VA benefits to purchase these types of homes with no down payment. That means you can earn income on an investment property for just the amount of your closing costs – and those can often be paid by the seller!

If you were to buy real estate as an investment without the benefit of a VA loan you would usually have to make a down payment of 20% to 25% or more. This dramatically affects the return on your investment which is the key metric for evaluating whether an investment is a good use of your money. VA loans to purchase investment properties are a great idea for veterans interested in earning income from real estate.

What Are The VA Guidelines For An Investment Property?

According to the Department of Veterans Affairs, the basic requirements are that you need to be a Veteran and have enough income to qualify for the VA mortgage loan. A review of your credit history will also help determine that you meet the VA credit history guidelines. Some lenders have guidelines that are stricter than the actual VA guidelines defined by the government agency, so it’s important to find a lender who will accept a credit history that had some challenges in the past.

If you own a multi-unit property, the key to qualifying for an investment property VA loan is to find a lender who will allow you to use the maximum amount of income from the rental units. Some lenders will only allow you to use a tiny fraction of the rental income. But HomePromise will qualify you based on the maximum amount of income from the rented units based on the VA guidelines. The total number of rental units permitted is 3. This means you can buy a maximum of a 4-unit home. This can make a huge difference in being able to qualify for a multi-family VA loan. Other lenders will qualify you using a tiny amount of your rental income. Not us. We will let you use the most income possible under the VA guidelines from your rental units!

If your plan is to rent out a second home that you’ve lived in for at least a year, the key to qualifying is finding a lender who will approve you for two VA loans at once. Some lenders may deny you based on your credit score or because they fear that your rental income will not be consistent. But HomePromise may approve you when other lenders will not!

Why Choose HomePromise?

Some lenders struggle with investment properties because they’re afraid of the risk that they would take on by making that loan. But at HomePromise, we prioritize you, which is why we sometimes approve applicants with credit scores as low as 580. Contact us now at 800-720-0250 to find out more about mortgage rates, your VA loan limits, how to apply quickly for a home purchase or refinance, and more.

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