Is there a cash-out max loan amount formula that determines the highest amount of loan that can be taken on a VA refinance?Answer:
There is no formula as such, to calculate the maximum amount of money you can "cash out" on a VA refinance. However, the amount is limited by the lesser of the value of the house, or the VA upper cash out limit of $417,000.
Earlier it used to be that the maximum allowable loan amount was the lesser of 90% of the appraised value of the new mortgage, or $417,000. Now, this limitation has been removed and loan can be taken against 100% of the value of the house.
Another limiting factor is that most major lenders/investors want at least 25% of the new loan to come out of the borrower's equity in the house and the VA entitlement (which is up to $36,000 for a cash-out refinance). So the actual amount of cash out loan that you can apply for is limited by this factor as well.
Note: to find out how much entitlement the veteran has available, check the Certificate of Entitlement
Calculating the Cash Out Max Loan Amount:
Calculating the cash-out max loan amount is fairly simple. All you need to know is the appraised value of the house (which has to be less than $417,000) and the VA entitlement, and you are good to go.
An example will better illustrate this concept.
Consider a house with an appraised value of $200,000 with 20% equity belonging to the homeowner, and a VA entitlement of $25,000.
We know that 25% of the max cash out loan amount needs to come from equity and entitlement,
So, 25% * (cash out max loan amount) = (20% * $200,000) + $25,000
Or, 25% * (cash out max loan amount) = $65,000
Therefore, Cash out max loan amount = $65,000 * 4
Cash out max loan amount = $260,000
It is important to remember here that the VA charges a 3% fee for this program; however, it can be rolled into the total loan amount.
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