You have equity in your home and you want to use it. Maybe you need the money for a specific expense right now or maybe you just want to enjoy the money while you are still alive. Whatever the case may be, it’s difficult to find loans that offer 100% LTV cash-out refinances. Typically, you can borrow up to 85%, but not 100%.
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There are a couple of exceptions to the rule, though. We help you understand the below.
The VA Cash-Out Refinance
If you are a veteran of the military with enough time served (90 days during wartime or 181 days during peacetime) with an honorable discharge, you probably have VA entitlement. This gives you access to 100% LTV loans to purchase a home.
Many veterans don’t realize that they can also have a 100% cash-out refinance. Whether you used your VA benefit to buy your home or you used another program, you can cash out with the VA refinance. The VA program is one of the few programs that provide this type of cash out, as FHA loans only allow up to an 85% LTV on their cash-out program.
Qualifying for the VA loan is simple too. Veterans need:
- At least a 620 credit score
- A maximum 43% debt ratio
- No bankruptcies or foreclosures in the last three years
- Stable income/employment
- Enough disposable income to cover the daily cost of living
- Enough money to cover the closing costs if necessary
Each VA lender may have different requirements. You may have to shop around to find a lender willing to provide 100% cash-out. Willing lenders are out there, though, you just have to look for them.
The USDA Cash-Out Refinance
Unlike the VA cash-out refinance, you can only take the USDA cash-out refinance if you need money to fix up your home. The USDA calls this construction financing and they must approve what you’ll do to the home before they’ll approve your cash-out refinance.
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You can borrow up to 100% of the home’s value. But, the process works a little different. The lender must communicate with the USDA. In fact, your loan closes twice. The first is for the temporary financing to perform the renovations. The second closing is for your permanent mortgage, which you’ll have for the next three years.
The lender must provide the USDA with a disbursement schedule, proof of any payments you’ve made (canceled checks), and evidence of the closing costs. No money will come into your hands; the lender must pay the appropriate parties directly.
You have 12 months to have the projects completed and only those renovations that were written down and approved may be done. In order to qualify for the USDA refinance you must:
- Have a minimum 640 credit score
- Have a maximum housing ratio of 29%
- Have a maximum total debt ratio of 41%
- Have consistent income/employment
- Have no recent bankruptcies or foreclosures
Each USDA lender may impose additional requirements on top of this. It depends on the lender that you use. You always have the option to shop around to find the lender with the best rate/terms for you.
You can get 100% financing for your cash-out loan, but only with two government programs. If you have a conventional loan, you can only borrow up to 80% of your equity and FHA loans up to 85%. Even home equity loans or lines of credit only allow up to 85% in most cases.
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