Disclaimer: This content may include information about products, features, and/or services that The Federal Savings Bank does not provide and is intended to be educational in nature.
Eligible borrowers have two main reasons to consider a Veterans Affairs (VA) cash-out refinance loan:
- Get cash. A VA cash-out refinance can allow borrowers to tap into their home equity for cash, which they can use to pay off other debts, cover large expenses, or tackle other important goals.
- Refinance a non-VA loan. The VA cash-out refinance loan can also be used to refinance a non-VA loan into a VA loan.
If you are considering applying for a VA cash-out refinance, however, it’s important that you become familiar with the steps. One such step that may be familiar to borrowers with a VA loan is the VA appraisal process.
In this article, we will explain how the appraisal process applies to VA cash-out refinances, so you can approach your application with more clarity.
Do You Need an Appraisal for VA Cash-Out?
Yes, borrowers must get a VA appraisal for their VA cash-out refinance, just as they would for a standard VA loan. This is mandatory. If you were interested in applying for a VA interest rate reduction refinance loan (IRRRL), however, you would not be required to go through the appraisal process.
The appraisal is required for the VA cash-out refinance in part because the amount of money a borrower can receive is directly related to the amount of equity they have in the home.
How Appraised Value Impacts Equity
Remember, you build home equity in a couple of different ways, mainly:
- Making consistent, on-time payments on your mortgage
- Seeing the value of your home increase over time
Beyond regular maintenance and making valuable improvements to the home, you won’t have much control over the value of your home in the market. Still, the appraisal is used to determine the fair market value of the home. If an appraisal comes in higher or lower than expected, that can impact the amount of equity available to tap into for your VA cash-out refinance.
What Appraisers Evaluate
Appraisers evaluate the condition of your home as well as comparable sales data in that area. The sales data is used to put your home into the larger context of the market, allowing appraisers to determine a fair value.
As an appraiser reviews the condition of your home, they will look to determine whether the home meets the VA’s minimum property requirements (MPRs). The MPRs exist to ensure that the home is safe, sanitary, and sound. They include assessments of things like:
- The condition of the roof
- Whether utilities such as heating and cooling are in working order
- The amount of livable space in the home
- Water supply and sanitation
- Access to roads, and more.
The MPRs are a requirement for VA loans, but they also inform the value of your home.
Reconsideration of Value & Next Steps
If you believe the appraised value of your home is incorrect, you can request a reconsideration of value (ROV). You will need to submit comparable sales to assist in proving your case. After the VA staff reviews your ROV and all relevant information, they will decide whether an increase in value is warranted. An amended notice of value (NOV) will be issued if they agree that an increase in value should be allowed.
How to Prepare Your Home for an Appraisal
A homeowner’s goal entering an appraisal should be to make their home’s strengths readily apparent and limit deficiencies as much as possible. Some ways to go about that include:
- Make repairs. If there are glaring issues that would not meet VA MPRs, those must be resolved. Prioritize those if possible. Then, consider other repairs that could increase the overall appeal of the home.
- Document upgrades. Make sure the appraiser knows about any recent repairs or upgrades made that could impact the home’s value.
- Do your research. Appraisers compare your home to similar properties, so make yourself familiar with other home values in your area. This can help you set realistic expectations.
- Clean up! Your appraiser isn’t going to dock you for a messy home, but a clean one can help you make a good impression. Spend some time cleaning up outside to boost the curb appeal of your house.
Final Thoughts
For eligible borrowers, a VA cash-out refinance can be a great opportunity to access cash for important financial goals using their home equity. Before you can do that, though, the home must pass its appraisal from an independent appraiser. We’ve explained some of what those appraisers look for and how their report impacts your home equity. As you prepare for your application, we hope this information helps you determine how you’ll approach the VA appraisal process.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
