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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.

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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.

5 Responses to Can I Use a VA Home Loan to Consolidate My Debt?

  1. William Bacon says:

    I would like to just take a moment and say there should be a VA loan for debt. The service members and veterans that serve should be given an option of using a VA home loan or a VA DEBT loan. By the VA doing something of that nature, the VA would win in both ways. The interest rates for other debt consolidation companies are outragious. The VA would be able to help with many vets and active duty Military members with a debt consolidation loan. Of course the VA could put restrictions on the loan just like the home loan, but a debt loan would have to go with the same guidelines as other companies, put it at a 4 percent interest rate. It’s more than the home loan and normally less than other companies. The VA would make more money if the option was provided, and it would drastically help our military members and families. And if a member used a debt loan and continues to accrue more dept, you can put a freeze stipulation in the loan agreement for members credit to truly force them to get out of debt. And make them aware that getting a debt consolidation loan with the VA would freeze there credit until say 50 to 75 percent of their loan is paid back. Needing a higher credit score to not have that be a part of their debt loan. Say 600 to 725 you have that stipulation or if you have a high score say 725 to 800 you would not. The VA already has the loan companies that could make this happen and everyone all around would make their money and the VA would be helping the members and the economy. In the long run, by creating away for member and vets to improve their credit to make more purchases and create more responsible adults and families when talking about finances. I could continue with more regulations and possibilities, but you already have people you pay to do that. Please look at this suggestion and take it to heart. Being a military member and a vet I know that something of that nature would help a lot of my fellow Marines and many more vets then ever imaginable. Thank you for your time. Cpl William J. Bacon

  2. Carlos says:

    Hi William,

    I agree with you regarding loans to consolidate other debts. Most of the time after we come back from active duty we find out that we are in financial trouble, when we charge everything to our credit cards. I hope someone will take a look to this issue and do something about it.

  3. Bou Cou Dinky Dow says:

    I totally believe in this idea. I have been trying to get a home for the last year and there iss one credit card that keeps screwing me up. Originally it was a fixed interest rate of 7% but then jumped up to 14% without my input on it (stay away from BOA). I am now very close to getting a contract on a home as I have been paying the card down but it would help me immensely if the VA offered a lower interest rate so I could breathe. I have more stress with this credit situation than I did in the Nam and I was a LRRP! GO figure. Wake up Uncle Sam. Although I was Army, my brother Marine has presented an extremely viable and lucrative venture for the country. God Bless

  4. Jay D. Humphreys says:

    I am a disabled veteran, retired US Army. Are there any programs available to Veterans to consolidate credit cards and lower interest rates? Grants?

    thanks

    • Joe Wallace says:

      The VA Home loans program covers only loans made to purchase, build, modify and refinance a residence, but you might consider speaking to your lender about programs that could be available through your financial institution.

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