Is it possible to pull cash out when refinancing VA loan to conventional loan?

Submitted by queef_quencher t3_11chlgz in personalfinance

Situation would be this: Buy a house with VA loan and a few years down the road, after 20% equity is built up, I convert from VA to conventional so that I can buy another primary residence with VA Loan and use the first property as a rental. When doing the VA Loan to Conventional refinance, can I also cash out of the first property?

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1hotjava t1_ja30p1i wrote

I would assume this is possible since it would be a conventional loan we are talking about.

But “Pulling out equity” is lending industry marketing bullshit for a loan that lets you borrow against potential value. It’s a loan, don’t lose sight of that.

The only way to truly “pull out equity” is to sell

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queef_quencher OP t1_ja315x5 wrote

Oh interesting, thank you. The thought is to use this "equity" to help buy the new primary residence with VA loan. I am assuming if I take a loan out against first house in this example, that will work against me when buying new primary residence?

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93195 t1_ja3283l wrote

Say you buy a house for $200K. When you go to refinance, you’ve paid it down to $180K and it’s now worth $250K.

For the conventional refinance loan, they’re going to want you to have at least 20% equity ($50K), meaning they’ll loan you up to $200K on your $250K house. Since you only owe $180K on your mortgage, you can get up to $20K cash out.

It’s still money you’re borrowing though, as you just went from an old mortgage of $180K to a new mortgage of $200K.

There is no free money.

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queef_quencher OP t1_ja333vq wrote

So then is the general view that using cash-out refi money to purchase a second home, in my case using the VA loan, is usually not a good idea?

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93195 t1_ja33o73 wrote

I wouldn’t say that. I would say it depends on the math. What’s the rate of the old loan, what’s the rate of the new loan, how much will the property rent for, how “in demand” is the area (lower chance of extended vacancy), how does the expected rent compare to your mortgage and maintenance costs, how much is it going to cost you to buy a new place to live yourself and move there?

It’s not an inherently bad or inherently good idea. It’s case specific, depending on the math above.

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queef_quencher OP t1_ja350ct wrote

Understood, thanks for taking the time to respond. I really appreciate it!

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93195 t1_ja31e3s wrote

Sure, assuming you’d still have the equity that a conventional loan requires, typically 20% after the cash out.

Remember that VA loans also have funding fees, which get even higher after the first time. Unless you qualify for a waiver (usually based on a disability rating), it’s a significant extra expense and drawback to what you’re considering.

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queef_quencher OP t1_ja31m54 wrote

I did not realize there still needs to be 20% equity remaining after the cash out refinance. I am new to this, so thank you. I do have the disability rating so those fees are waived.

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