VA cash out refinances in 2020 are a little different that they were at the beginning of 2019. As the result of a Circular issued by VA in 2019, and then a Memorandum issued by Ginnie Mae on August 1, 2019, there are restrictions in the guidelines that must be met for a California Veteran to pull equity from his or her home with a VA loan. The VA loan program is still the most flexible mortgage program out there when it comes to pulling cash out through a refinance, it’s just not quite a flexible as it used to be,
The Previous VA Cash-Out Refinance Guideline
At the beginning of 2019 is was possible to pull cash out to 100% of the property value, not including the VA Funding Fee. Not including the VA Funding Fee is the key term here. As an example, if a California Veteran owed $300,000 on his home that was valued at $400,000, he could get a $400,000 VA loan. The VA Funding Fee could be financed on top of $400,000. If the VA Funding Fee was 3.3% (subsequent use cashout VA Funding Fee) the $13,200 Funding Fee added to the $400,000 base VA loan resulted in a $413,200 VA loan. The Veteran would receive the full $100,00 cash out, less typical closing costs.
Circular 26-18-30 – VA Guaranteed Cash-Out Refinancing Home Loans
Circular 26-18-30, issued on Valentines Day, December 19, 2018, brought about significant changes to cash-out refinancing. Effective February 15, 2019, VA would no longer allow the final VA loan, INCLUDING the VA Funding Fee, to be higher than 100% of the property value. Going back to our example above, if that same California Veteran did a maximum cash-out refinance, the total VA loan, INCLUDING the Funding Fee, would be $400,000. This means the base VA loan would be $387,221. This also means the Veteran receives $87,221 cash-out, less closing costs, instead of $100,000 less closing costs.
All of this really started with the issuance of VA Circular 26-18-13 on May 25, 2018. This circular “brought about important changes that go into effect immediately”. It was brought about as a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. It included The Protecting Veterans From Predatory Lenders Act of 2018. Several lenders got in trouble for “churning” loans, which negatively affected how the VA loan program was perceived on the Secondary Market.
Ginnie Mae All Participants Memorandum 19-05
On August 1, 2019, Ginnie Mae issued All Participants Memorandum 19-05, which brought about a further significant change to VA cash-out refinancing. Ginnie Mae would no longer allow VA cash-out refinances where the loan amount was greater than 90% of the property value to be included in Ginnie Mae I Single Issuer Pools and Ginnie Mae II Custom Pools.
First, a quick explanation of who Ginnie Mae is. Ginnie Mae is a government owned corporation that issues Mortgage Backed Securities (MBS) which directly support housing programs by the Federal Housing Administration, the Department of Veterans Affairs, and Department of Agriculture Rural Housing Service. Ginnie Mae had begun to see that their Primary MBS pools were losing favor on the market due to excessive refinance churing. To protect the pools, which in turn helps to keep VA loan interests lower than otehr typs of loan programs