VA IRRRL Rules: Closing The Loan
In other blog posts, we’ve covered an issue surrounding VA Interest Rate Reduction Refinancing Loans–cash back to the borrower.
Unlike VA Cash-Out Refinancing, VA IRRRLs don’t allow the borrower to take cash out on the loan. The nature of the VA IRRRL prohibits this; yet some borrowers may be confused by hearing of other veterans who got money back at closing time on a VA IRRRL. What circumstances would allow this to happen?
VA loan rules for these scenarios are listed in VA Pamphlet 26-7 in chapter six. There, you’ll find the following:
“In a limited number of situations, the borrower may receive cash at closing. Some examples of situations in which VA does not object to the borrower receiving cash are:
- Computational errors,
- Changes in final pay-off figures,
- Up-front fees paid for the appraisal and/or credit report that are later added into the loan, and
- Refund of the escrow balance on the old loan. This often occurs when a party other than the present holder originates the loan.”
Do any of these exceptions to the “no cash back” rule on VA IRRRLs provide money from the actual proceeds of the loan? No. They are in essence, refunds of varying types. The amount of money a borrower gets back from one of these refunds is governed by VA loan rules–not necessarily prohibiting a borrower from getting “too much” cash back, but requiring adequate documentation of the amount, whatever it may be:
“VA does not set a “ceiling” or a specific dollar limitation on cash refunds resulting from adjustments at closing. However, if a situation involves a borrower receiving more than $500, consult VA as to its acceptability. Lenders and VA personnel should exercise common sense when assessing such situations and draw from basic program information to know the difference between an equity withdrawal and cash from unforeseen circumstances.”
When closing the loan, the VA has implemented these rules as a way of keeping the system fair and honest–the required documentation and VA contact for amounts back to the borrower over $500 helps insure the system works as it’s intended.
Do you have questions about VA home loans? Ask us in the comments section.