VA loans VA refinance

Which VA Loans Allow Cash Back to the Borrower?

October 25, 2018

Which VA Loans Allow Cash Back to the Borrower?

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There’s a common question associated with VA loans–many borrowers are interested in getting cash back at closing time from proceeds via their home loans.

But which VA loans allow this? Can a borrower, as some readers have asked, get a home loan for the appraised value of the property when the sale price is lower? Does the VA allow the applicant to take the difference out in cash?

What about refinancing VA loans? Can a borrower get cash back at closing time when refinancing?

The answers to these questions are found in VA Pamphlet 26-7, Chapters Three and Six. Chapter Three states simply, “Cash to the veteran from loan proceeds is permissible only for certain types of refinancing loans and under very limited circumstances, as follows:

• For IRRRLs, see section 1 of chapter 6.
• For cash-out refinancing loans, see section 3 of chapter 6.”

The rules in Chapter Three add,”For other types of refinancing loans and all purchase/acquisition loans, the veteran generally cannot receive cash from loan proceeds. The only exception is the refund of items for which the veteran paid cash, which were subsequently included in the loan amount.”

This is reinforced in Chapter Six, which basically says the same thing. Borrowers can’t get cash back at all in the case of a VA IRRRL/Streamline Refinance except in one specific circumstance, according to Chapter Six: “The one exception is reimbursement of the veteran for the cost of energy efficiency improvements up to $6,000 completed within the 90 days immediately preceding the date of loan closing.”

When it comes to IRRRLs/Streamline Refinancing, “An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced. Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL.”

For VA Cash Out Refinancing Loans, Chapter Six explains that cash back to the borrower is available once the original mortgage is paid in full and after any allowed closing costs or other expenses included are paid for. “Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose acceptable to the lender. The loan must be secured by a first lien on the property.”

12 Comments
  1. Linda

    Is there a waiting period after a house has been purchased before you can get a home equity loan? Example: My husband and I purchased my Mom's house with a lien on it. The deed is in our name with a lien. We would like to pay the lien off and get cash back to build a garage but we were told that since the house was just put in our name in December, that we would need to wait six months to get a loan. Is this true for a VA Loan?

    • Joe Wallace

      There are no home equity loans per se that are guaranteed by the VA, but you can apply for a VA cash out refinancing loan --you may find the lender requires you to wait until after six months from the time of your first payment on the original mortgage. Money back to the borrower on a VA Cash Out Refinancing loan can be used for any purpose acceptable to the lender.

  2. Lisa

    My boyfriend bought a house 1 1/2 years ago with a VA loan. We now have decided to buy a house together, and sell his. We found the perfect home, but its a Short Sale,and its about to go up for auction. Before this happens, the bank selling the property is giving us a chance to get preapproved and put in an offer on it as a Short Sale. Due to the fact that we obviously don't have time to sell his home before we buy our dream home, what are the chances of applying for a second VA loan for this home? I realize that there is a specific allowance that they give you, but will they give you a second loan at all? If so, what are the stipulation of it?

    • Joe Wallace

      Unless you have refinanced the first property with a conventional mortgage or a VA Streamline Refinance loan, the VA loan rules wouldn't allow you to have two single-family home loans at the same time, due to the occupancy requirements--the home you purchase with a VA mortgage must be for your personal occupancy and the borrower must certify this in writing at the time of purchase.

  3. Juan

    I have been living in my house for over two years now and I'm looking to get a bigger home because of the growth of my family. I went through a VA loan once, do i have to apply for another eligibility certificate again and what are my specific requirements in order to get another home?

    • Joe Wallace

      IF your first home is paid off, you would apply for restored VA eligibility, which a lender can help you with or you can contact the VA directly at 1-800 827-1000. If you are still paying off the original VA loan you can't get full entitlement restored until you sell or pay off the home, but you can use any remaining VA entitlement.

  4. kathy

    I am selling my home to a veteran. They are demanding cash back and saying it is part of the VA loan. The appraisal was 190,000 and the selling price is 190,000. Is this legit?

    • Joe Wallace

      The borrower cannot get cash back on a new purchase VA loan that exceeds what the borrower paid into the transaction. If you believe you are being asked to provide cash back in a manner inconsistent with VA regulations, contact the VA immediately at 1-800 827-1000 for assistance.

  5. Lindsay Walker

    My husband and I want to purchase a home that was bank repossessed and it is listed for $50k under the appraisal amount and $100k under market value for the area but it needs work like a new roof right away. Can we take a VA loan out for the appraisal amount to purchase the home and make repairs?

    • Joe Wallace

      VA loans don't permit cash back to the borrower on new purchase home loans except in the form of bona fide refunds.

  6. jim moore

    We live in texas and our mortgage balance is 217,000 and the expected appraised value to be 262,000. i want to refinance my existing va loan and take out 25,000 dollars in cash for debt consolidation. my new loan balance would be 242,000 can his occur?

    • Joe Wallace

      VA cash-out loans, when there is cash back available after paying off the original loan and any fees or expenses required, can be used for any purpose acceptable to the lender.

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