Most refinance advice right now boils down to one sentence: do not give up a sub-6% mortgage to chase cash. That is correct for most people. But veterans live in a different part of the loan market, and the VA cash out refinance is the one product where the usual math can still work. It allows more equity than any other cash out loan, and it can erase mortgage insurance.

What a VA cash out actually is

A VA cash out refinance replaces your current mortgage with a new VA-guaranteed loan that is larger than what you owe. The difference, after costs, comes to you as cash. You can spend it on anything: repairs, debt payoff, a pool, tuition, a down payment on another property.

It is not the same as a VA streamline, which only lowers your rate and cannot hand you cash. If you are only trying to cut the rate, our guide to the VA streamline refinance in Arizona is the better read. The cash out version needs a full appraisal and full income and credit documentation, so expect it to feel like a purchase.

You also do not need an existing VA loan. That surprises people. Any loan type can be paid off with a VA cash out, which is why this program shows up so often for veterans who bought with FHA or conventional years ago.

The 90% rule, side by side

Loan to value is the whole story. Here is how the major cash out options compare on a primary residence.

On a $550,000 house, ten extra points of loan to value is $55,000 more you can borrow.

That gap is the reason veterans with modest equity get cash out of a VA loan when a conventional lender would send them home. A veteran who owes $400,000 on that $550,000 house has about 73% loan to value today. That only leaves roughly $40,000 of room under a conventional 80% cap, and about $95,000 under the VA cap, before costs.

Lenders can set a lower limit than the VA does. Many cap at 90%, but some programs sit lower. This is one reason to shop it.

Seasoning, occupancy, and credit

The rules are strict, and they are worth knowing before you apply, because most of the denials I see come from one of three things.

• Seasoning. At least 210 days must have passed since your first payment on the loan you are replacing, and you need six consecutive payments on time. Buy in March, and you are not refinancing in June.
• Occupancy. It has to be, or have been, your primary home. You cannot cash out on a pure investment property with this program.
• Credit and income. The VA sets no minimum score, but lenders do, usually around 620 and sometimes 640. The VA also uses a residual income test on top of the debt ratio, so your monthly cushion after bills matters as much as the percentage.

The home also needs a VA appraisal, which means a VA-approved appraiser, and in Metro Phoenix those can take longer to schedule than a standard appraisal. If the value comes in low, the cash you can pull falls with it. We wrote up what to do in our guide to a refinance appraisal coming in low.

The Department of Veterans Affairs explains the cash out loan requirements on its home loans site, and it is worth skimming before you talk to any lender.

A $550,000 Phoenix example

Here is a realistic case. A veteran owns a $550,000 home in the East Valley and owes $330,000 on a loan with mortgage insurance. Closing costs run about $6,000. The funding fee for a first-time VA user on a cash out is 2.15% of the loan, and it can be financed. Rate is illustrative at 7.00%.

Look at the third row. A conventional lender would stop at $440,000, so the VA program opens up about $55,000 of additional loan. It also costs real money: a $495,000 loan at 7.00% is $3,293 a month, and the rate is higher than a 2021 vintage mortgage would be. Run your own scenario below before assuming the cash is worth it.

Run your own numbers

Using it to drop mortgage insurance

The best use of this loan is often not cash at all. A veteran on an FHA loan pays an annual mortgage insurance premium, and on many FHA loans it never goes away. A veteran on a conventional loan with less than 20% down pays private mortgage insurance until the balance falls far enough. A VA refinance, cash out or not, removes that cost entirely, because VA loans do not charge monthly mortgage insurance. We covered the opposite move, leaving VA for conventional, in our guide to VA to conventional refinancing.

The other common use is replacing high-interest debt. Paying off a card at 24% with a mortgage at 7% can lower your monthly outflow noticeably, but it also converts unsecured debt into debt secured by your house. The money you spend has to be money you will not borrow again. If you have not looked at the full cost side, our overview of cash out refinancing in Arizona covers the general case.

The funding fee is a major piece of this decision, and it is its own topic. Our guide to the VA funding fee on an Arizona refinance covers who is exempt, and disabled veterans pay nothing. The VA lists the current fee rates directly. To check your own status, the VA explains how to request a Certificate of Eligibility.

When a HELOC or conventional wins

If you have a mortgage at 3% or 4%, a cash out refinance replaces it with a loan at roughly 7%, on the entire balance. That is a steep price for a few tens of thousands in cash. In that case a HELOC or a fixed-rate second mortgage leaves your first loan alone, and you pay the higher rate on the smaller draw only. Our comparison of cash out refinance versus a HELOC in Arizona runs the math.

Run the VA option against a second mortgage whenever your current rate is well below the market. If your current loan is already near 7%, or it has mortgage insurance, the VA cash out gets much more attractive. The Consumer Financial Protection Bureau publishes a plain-language overview of the loan options if you want a neutral second opinion.

Buying your next Arizona home with the equity instead of staying put? Browse current inventory at Arizona Luxury Property Search, and see our programs page for the products we can shop. The team at Pillar Mortgage Group works with veterans across Scottsdale, Phoenix, and the Valley, and our process page shows the timeline from application to funding. Closing a cash out refinance on a primary residence also carries a three day right of rescission, so the cash reaches you a few days after signing.

Honest caveat: this is the wrong move if your current mortgage is under 5% and you need less than about $30,000, or if you are not likely to stay in the house for at least three to four years. The funding fee and closing costs take a long time to earn back, and you would be trading a very cheap loan for an expensive one. In that case I would tell you to open a HELOC, or to wait, and not to refinance.

Frequently asked questions