VA Loan Reverse Mortgages

If you’re a Veteran or a surviving spouse, you may have seen ads for VA reverse mortgage loans and wondered if you could benefit from this process to tap into your home’s equity.

Here are some important facts you need to know before making any decisions.

Unlike other types of loans, a reverse mortgage doesn’t require any loan payments. Instead, the entire loan balance is due when the borrower sells the home, permanently moves out or passes away. There are protections in place to ensure that the loan balance won’t exceed the value of the home, and if it does, neither the borrower nor the borrower’s estate will be held responsible for paying the excess balance.

This can be an attractive proposition for older homeowners who need an influx of cash and don’t want to worry about making monthly payments. It can also be ideal for those who want to eliminate their current mortgages while staying in their homes.

Pros and Cons of a VA Cash-Out Refinance

When deciding whether a VA cash-out refinance is right for you, there are some important pros and cons to consider. Here’s a look at a few of the most important.

Access to Cash

A VA cash-out refinance allows you to borrow up to 100% of your home’s market value. You can access the difference between what you owe and your home’s value as a lump sum of cash when you close on your new loan.

Ability to Build Equity

As you make payments to your lender, you will continue to build equity in your home. This can increase your profits when you sell.

Closing Costs and Fees

Borrowers are required to pay an upfront, one-time VA funding fee that ranges between 2.15% and 3.3% of the loan amount.

Eligibility Requirements

You must be eligible for a VA loan and meet your lender’s requirements regarding your credit score and debt-to-income ratio (DTI). You also must have a home appraisal, have had no late payments in the last 12 months, and occupy the home as your primary residence.

Monthly Payments

A cash-out refinance still requires you to make monthly payments to your lender. If your goal is to eliminate your mortgage payments, this strategy will not work.

Pros and Cons of Reverse Mortgages

Reverse mortgages can be beneficial for some homeowners, but they are not without some potential drawbacks. Take a look at these important pros and cons.

No Monthly Mortgage

When you take out a reverse mortgage, you no longer have to worry about making monthly mortgage payments or the possibility of the lender foreclosing on your home.

Flexible Options for Access to Cash

A reverse mortgage allows you to access your home's equity as a lump sum, monthly payments or a line of credit.

Equity Depletion

Each payment you receive from your reverse mortgage depletes the equity in your home, lowering the amount you could leave as an inheritance.

Mortgage Insurance

The FHA requires mortgage insurance for reverse mortgages. This includes an upfront cost of 1.75% of the total amount borrowed and an annual mortgage insurance premium of 0.55% of the amount borrowed.