Can I Use a VA Home Loan to Consolidate My Debt?
Several recent questions from readers have raised the issue of what VA loans can and cannot be used for: on several occasions we’ve gotten queries about whether it’s possible to use a VA home loan as a debt consolidation tool.
Is it possible to get a VA home loan that would put all the borrower’s obligations including a mortgage under a single payment?
In short, the answer is no. VA loan rules do not allow borrowers to apply for new purchase VA home loans for any other purpose than buying a home and the expenses associated with that purchase.
New purchase VA loans, where a borrower is buying a property with a VA guaranteed mortgage, can be approved for the cost of the home itself, the cost of energy-efficient improvements or upgrades, some of the associated costs of the loan, and other “add-ons” as approved by the Department of Veterans Affairs.
No cash is permitted to go to the borrower with a new purchase VA home loan except where a refund might be due for money the borrower paid up front but is later entitled to get back.
VA refinancing loans do allow cash back to the borrower depending on the type of loan. An Interest Rate Reduction Refinancing Loan does not permit cash back to the borrower, but a VA Cash-Out Refinancing loan does.
According to VA loan rules, cash-out refinancing must be applied for in the same way as a new purchase home loan, with credit qualifying information supplied by the borrower. An important caveat to the VA cash-out refinancing loan rules–cash back to the borrower is permitted only with lender approval. The rules specifically say that cash back to the borrower can be used for any purpose “acceptable to the lender”.
While VA loans are flexible in many ways, they are generally intended only for the purchase, improvement, or refinancing or a home, not as a debt consolidation tool.
About Joe Wallace
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.