Cash-Out Refinancing in Virginia
Are you struggling to keep pace with high-rate credit card debt? Do you need some cash to replace your HVAC system? If so, a cash-out refinance might be a smart financial move for you. Like a traditional refinance4, this lending option allows you to adjust your loan term and interest rate. However, you can also convert your home’s equity into cash. Sounds awesome, right?
Keep scrolling to learn more about cash-out refinancing in Virginia. Or, if you’re short on time, read our 45-second summary below.
- In a cash-out refinance, you take out a larger mortgage. With this money, you pay off your original loan and then pocket the difference.
- This cash can be used for anything – from debt consolidation to medical bills.
- To qualify for a cash-out refinance, you must have equity in your home.
- A cash-out refinance is a risky choice for some homeowners.
- What Is a Cash-Out Refinance?
- How Does a Cash-Out Refinance Work?
- Types of Cash-Out Refinance Loans Offered in Virginia
- Am I Eligible for a Cash-Out Refinance in Virginia?
- How Much Cash Can You Get On a Refinance in Virginia?
- Benefits & Disadvantages of a Cash-Out Refinance
- Cash-Out Refinance vs. Home Equity Loan: Which Is Right for You?
- What Fees Are Associated With a Cash-Out Refinance?
- Other Factors to Consider With a Virginia Cash-Out Refinance
What Is a Cash-Out Refinance?
In a cash-out refinance, Virginia homeowners secure a new, larger mortgage to pay off their primary loan3. They then pocket the difference at closing. Simply put, a cash-out refinance is a way to refinance – meaning you can adjust your loan term and hunt for a lower interest rate – while borrowing extra money at the same time.
There are no restrictions on how you spend the proceeds from a cash-out refinance. However, savvy borrowers typically use it to consolidate higher-interest debts, pay for college, or make home renovations.
How Does a Cash-Out Refinance Work?
A cash-out refinance hinges on your home’s equity – the difference between what you owe on your mortgage and what your home is currently worth. So, if your home is worth $350,000 and you owe $250,000 on your mortgage, you have $100,000 of equity.
Since most mortgage lenders in Virginia only let borrowers cash out 80% of their home’s value, you would be able to pocket $30,000 in this example.
How did we get those numbers?
- $350,000 (home’s current value) x .80 (maximum cash-out percentage) = $280,000
- We then subtracted the outstanding loan balance from that amount: $280,000 – $250,000 = $30,000
In this cash-out refinance example, you would take out a new loan for $280,000. This larger mortgage would pay off your original loan. Then at closing, you would be cut a check for $30,000.
Types of Cash-Out Refinance Loans
Offered in Virginia
Not sure which cash-out refinancing option suits your needs? Take a look at the cash-out refinancing loans we offer, then get in touch to meet your Mortgage Coach.
Just like Frank Beamer, former football coach for the Virginia Tech Hokies, your Mortgage Coach is here to help you make a game plan. They can also answer any questions you have during the refinancing process.
- FHA Cash-Out: Perfect for homeowners with lower credit scores.
- VA Cash-Out: Allows eligible veterans to cash out 100% of their home’s equity.
- Conventional Cash-Out: Designed for homeowners with at least 20% equity.
- Jumbo Cash-Out: A type of nonconforming conventional loan that exceeds standard lending limits.
Am I Eligible for a Cash-Out Refinance in Virginia?
To qualify for a cash-out refinance in Virginia, you must have equity in your home. Lenders measure your equity using a metric called the loan-to-value ratio (LTV), which is calculated by dividing your current mortgage balance by the appraised value of your home. Most lenders require an LTV of 80% or less.
Other requirements for a cash-out refinance in Virginia include:
- A new appraisal to verify your home’s value. This helps lenders determine your home’s equity.
- A credit score of at least 620. (If you’re pursuing a conventional loan in Virginia). Virginia FHA loans have more lenient credit requirements of 600 or higher.
- A debt-to-income ratio of 43% or less. This metric is calculated by dividing your monthly debt expenses by your pre-tax income.
How Much Cash Can You Get On a Refinance in Virginia?
The amount of cash you can pocket depends on your home’s value. To determine how your property measures up, you’ll need to secure an appraisal. A real estate appraisal is a professional assessment of a home’s worth using an in-person inspection and recent sales of similar properties. An appraisal costs between $400 and $600 in Virginia.
After the appraisal, your Virginia mortgage lender will calculate a maximum loan amount. This amount is typically 80% of your home’s value. However, the specific cash-out limitations vary from lender to lender. Virginia VA lenders5, for instance, typically allow borrowers to cash out 90% to 100% of their home’s value.
Benefits & Disadvantages of a Cash-Out Refinance
We know what you’re thinking: “Extra cash to fix the leaky roof?! Sign me up!” But as with all good things, there’s a catch. Though a cash-out refinance lets homeowners tap into their hard-earned equity, it’s risky. If you can’t keep pace with your larger mortgage payments, you could default on your loan.
Plus, refinancing comes at a cost. Homeowners can expect to pay between 2% and 6% of their loan amount on closing costs. So, if your new loan amount is $250,000, get ready to fork out between $5,000 and $15,000. Closing can also take up to 60 days.
Of course, there’s a silver lining. A cash-out refinance is an excellent choice for someone who wants to adjust their loan term or possibly lower their interest rate while unlocking the cash they need. Financial advisors simply urge homeowners to invest this money wisely.
Cash-Out Refinance vs. Home Equity Loan: Which Is Right for You?
There are two avenues for unlocking your home’s equity: a cash-out refinance or a home equity loan. Though these lending tools both have their merits, they work in very different ways. In cash-out refinancing, you replace your existing mortgage with a larger loan. But with a home equity loan, you take out a secondary loan using your home’s equity as collateral.
Neither lending option restricts what you can spend the money on. That means you can use it to pay for home renovations or student loans. But with this flexibility comes risk. Both a cash-out refinance and a home equity loan put your house on the line. If you default, you’re toast.
Generally, homeowners tend toward cash-out refinancing because it keeps things simple. Rather than juggle two mortgage payments, your debts get rolled into one. However, some homeowners shoot for a home equity loan to avoid high closing costs.
What Fees Are Associated With a Cash-Out Refinance?
Nothing in this life is free, a cash-out refinance included. As with any refinance4, you should expect to pay closing costs. These costs typically include things like loan origination fees and title searches and typically range between 2% and 6% of mortgage – that’s $8,000 to $24,000 on a $400,000 house.
Also, homeowners should be wary of private mortgage insurance (PMI). If you borrow more than 80% of your home’s value, you’ll be required to pay for PMI. Though PMI is only 0.55% to 2.25% of your loan amount each year, that adds up quickly. Just 1% of $400,000 is $4,000, for example.
Other Factors to Consider With a Virginia Cash-Out Refinance
If you have mounting student debt or an outdated kitchen to remodel, we get it. High interest rates suck and so does floral wallpaper from the 1980s. You may see a cash-out refinance as an avenue for achieving your personal and financial goals while also adjusting your mortgage term.
But before you take the plunge, read through these considerations:
- Foreclosure Risk: A cash-out refinance has its benefits; however, it also has its risks. When you increase your mortgage principal, you also increase the probability that you’ll default on your loan.
- Higher Interest Rates: Though rates for cash-out refinance loans vary by lender, they are 0.125% to 0.5% higher than rates for a no-cash-out refinance. Why? Because you’re borrowing more money and, typically, a bigger mortgage equates to a higher interest rate.
- Bad Habits: If you’re considering a cash-out refinance to consolidate high-interest consumer debt, remember that a lump sum won’t change your habits. If you end up maxing out your credit cards even after your refinance, you’ll have even more debt than you started with.
The Dash Refinancing Process for Virginia Homeowners
Wanna know a secret? The average mortgage refinance lender in Virginia sucks. Yup, we said it – and we’ll say it again. That’s because loan officers make refinancing super complicated and confusing. And when you have a question or need help deciphering legalese, they’re too busy downing burritos with extra guac to answer your phone call. (At least, that’s what we think they’re doing).
At Dash Home Loans, we don’t suck. Instead, we offer homeowners a smooth and easy refinancing process. We’ve cut out the middleman (i.e., faceless loan processors) and kept everything in-house so we have more control. Simply put, you’ll close on your cash-out refinance a lot faster. Only then will we celebrate with burritos. Ready to get rolling? Put in your order!Apply now
Helping Homeowners in Virginia
Virginia Cash-Out Refinancing Made Easy
Do you have more questions about cash-out refinancing in Virginia? Well, you’re in luck. When you reach out, we’ll connect you with a Mortgage Coach who can answer any and all questions you may have.
Ready to apply for a cash-out refinance loan? Awesome! Click “Apply now” to get started.
Frequently Asked Questions
Virginia Cash-Out Refinance FAQs
How does a cash-out refinance work?
A cash-out refinance allows you to unlock the equity in your home by paying off your original mortgage and replacing it with a newer, larger loan. Then, you pocket the difference. You can use this money however you’d like.
Is a cash-out refinance worth it?
It depends. If you want to consolidate high-rate debt, make home improvements, or pay for college using your home’s equity, a cash-out refinance could be a good option. However, you must also consider the risks associated with taking out a larger mortgage.
How much money can I cash out when I refinance?
It depends. Most lenders let borrowers cash out 80% of their home’s value. But Virginia VA lenders5 allow eligible veterans to cash out 100% of their home’s value.
Is a home appraisal required?
Yes. An appraisal helps lenders determine your home’s value.
¹ Dash Loan Closing Guarantee Disclaimer: Guarantee is based on loan closing; restrictions apply.
² No-Down-Payment Disclaimer: Closing costs and fees may still apply.
³ Lending Disclaimer: Mortgage rates are subject to change and are subject to borrower(s) qualification. APR rate(s) quoted is/are based upon a (loan amount), (loan term, including whether fixed or ARM) year.
⁴ Refinancing Disclaimer: When it comes to refinancing your home loan, you can generally reduce your monthly payment amount. However, your total finance charges may be greater over the life of your loan. Your PRMI loan professional will provide you with a comprehensive refinance comparison analysis to determine your total life loan savings.
⁵ VA Home Loan Disclaimer: VA home loan purchases have options for 0% down payment, no private mortgage insurance requirements, and competitive interest rates with specific qualification requirements. VA interest rate reduction loans (IRRRL) are only for veterans who currently have a VA loan – current loan rate restrictions apply, and limits to recoupment of costs and fees apply. VA cash-out refinances are available for veterans with or without current VA loans. Policies and guidelines may vary and are subject to the individual borrower(s) qualification. Program and lender overlays apply.
⁶ Down Payment Assistance Disclaimer: First lien interest rates may be higher when using a DPA second.
⁷ Pre-Approval Disclaimer: Pre-approvals are given to clients who have met qualifying approval criteria and specific loan requirements at the time of applications. Results may vary.
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Virginia-Bureau of Financial Institutions: MC-2248, Broker MC-2248, NMLS #3094
For refinance advertisements that state a reduction on monthly payment, please note: the total finance charges may be higher over the life of the loan.