VA Loans For New Purchases: When Can A Borrower Get Cash Back?

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Written by J. Wallace Jr.   
Monday, 04 November 2013 15:17

If you’re thinking of using your VA loan benefits to purchase a new home and have never applied for a VA mortgage before, you might have this common question in mind when considering the option. Can a borrower get cash back on a VA home loan? Is it possible to apply for an amount higher than the sale price of the home for the purpose of getting cash at closing time?

Unless the cash back at closing is a refund for expenses or fees paid up front but later rolled into the loan amount, or is any other sort of “bona fide refund” the answer is NO. Borrowers can apply for an amount higher than the sale price or appraised value of the home to be purchased with the VA mortgage loan, but only to pay for approved items to be included in the loan.

Cash back at closing time is not permitted under VA loan rules (except for refunds mentioned above). The borrower can’t use the new purchase VA loan the same way others use a cash-out refinancing loan. VA loan rules are specifically designed to prevent this.

A cash-out refinancing loan, on the other hand, IS permitted. Borrowers can apply for cash-out refinancing and get money back at closing time once all expenses have been paid and the original mortgage has been satisfied. The money back on these transactions can be used for any purpose, according to the VA loan rulebook, that is acceptable to the lender.

What’s the difference between cash out refinancing loans and cash back at closing time on a new purchase? Borrowers who purchase a new home don’t have any equity in the property, so cash out could be viewed as a bad risk so early in home ownership. Also, the VA loan is specifically designed for the purchase of the property, and nothing else except for approved add-ons, upgrades, allowable fees, etc.

For more information on these issues, speak to your loan officer. If you need a cash out refinancing loan guaranteed by the VA, be sure to ask your lender about terms and conditions of these loans, which do require both a new credit check and a new appraisal.