VA Loans and Cash Back to the Borrower
In my last post I discussed VA loan limits and down payment issues. One thing I mentioned specifically was about the VA’s policy on approving VA-insured loans based on the lower of two amounts–the VA maximum loan guaranty and the appraised value of the property. The VA only approves a loan amount for the lower figure–but why can’t the buyer apply for a VA mortgage for the higher amount if they are willing to shoulder the additional financial burden in their monthly home loan payments?
The answer to this question is fairly simple–the laws governing VA mortgages prohibits the buyer from getting cash back except in specific circumstances. These situations are limited, and apply only in cases of refinancing loans. A new home purchase cannot legally result in cash back to the buyer.
That said, there are situations where the buyer could get money once the deal is closed, but these are not “profit” for the buyer. Instead, any time a borrower gets cash back on a new home purchase it’s in the form of a refund, which could be the result of putting a down payment on the loan before a no-down payment option was exercised, or getting earnest money refunded on a no-money-down VA home loan. VA rules also provide for a refund when the buyer paid for items that were subsequently included in the financing of the loan.
In situations where the borrower has included energy-efficient upgrades into the VA loan amount, the borrower may get reimbursed for such upgrades when paid for up front according to the rules of Energy-Efficient mortgages or refinancing loans, but as with all other cash-back circumstances listed here, the buyer has paid something up front–no “profit” has been made on the deal.
There are basically no circumstances or loopholes permitted where the buyer could get cash back on the purchase of the home where he or she didn’t put money up front. When it comes to refinancing loans, the VA does have a cash-out refinancing option; these loans are underwritten the same as the initial loan with a credit check, applications, processing fees and other expenses.