VA Loan Amount: Leftover Loan Money
One commonly asked question about VA mortgages involves the loan amount–specifically what happens to any “left over money” if the VA loan comes in at an amount higher than the sale price. One reader asks, “…If I don’t use all of the VA loan money for the purchase, can I use some over the purchase price to do minor repairs on the house as long as I am still under the pre-approved amount?”
That is one of the great myths about VA home loans that should be dispelled as often as possible. There’s never any money “left over” on a VA mortgage. VA loans are calculated for a specific amount that includes the sale price or appraised value of the home (whichever number is lower) plus any allowed add-ons to the loan such as the VA loan funding fee should it be financed, etc.
We find guidance on this in VA Pamphlet 26-7, Chapter Three, which says:
“VA limits the amount of the loan to the reasonable value of the property shown on the NOV [Notice of Value] plus the cost of energy efficiency improvements up to $6,000 plus the VA funding fee…” While there is no single, specific VA loan dollar amount limit, the guidance in Chapter Three serves as the lender’s guide to the maximum amount permitted.
VA loans do not allow any cash back to the borrower on the transaction except for a legitimate refund of money paid up front that is later included into the loan amount. The previously mentioned VA loan funding fee is a good example–a borrower who pays the funding fee up front and later decides to have that fee included in the loan amount would be due a refund.
The same goes for a borrower paying the VA loan funding fee or financing it and later claiming an exemption from that fee because he or she became eligible to receive VA compensation for service-connected injuries or medical conditions. In those cases, the refund would be appropriate to how the fee was paid.
If it was paid up front, the borrower gets a refund of the VA loan funding fee. If the fee was financed, the “refund” takes place in the form of a credit on the loan amount itself rather than money back to the borrower.
So borrowers should never expect to get money back on a new purchase VA home loan transaction that wasn’t paid up front and later included in the loan amount.
Do you have questions on VA home loans? Ask us in the comments section.