Mortgages offering cash-back are home loans that provide the borrower with an added sum of money for discretionary personal usage at the time of closing. The idea of receiving speedy cash in hand is appealing on the surface to many consumers, though it is very important to understand what the benefits and drawbacks are with cash-back mortgages. Concerning VA home loans, the question often arises “can I receive cash back on a VA loan?” The answer to that question is yes and no. Under certain circumstances, VA Refinance loans and VA Purchase loans allow for cash-back. The VA Lender’s Handbook states “Cash to the veteran from loan proceeds is permissible only for certain types of refinancing loans and under very limited circumstances…” The VA is very specific regarding the allotment of cash-back on the loans it insures, these rules are unwavering and no exceptions exist.
Based on current market value, cash out is allowed for VA refinance loans. Under this circumstance, an eligible borrower cannot take out more than a maximum of 90 percent of the appraised value. A refinance cash-out loan enables a qualified veteran to open a loan of greater value than the current loan they possess, thus allowing them to receive money following closing. This option allows the individual the opportunity to pay off a non-VA loan. If the borrower has a current conventional loan, but does not have the equity to refinance, a VA cash-back loan would be useable.
Eligibility for a VA refinance loan is comparable to VA purchase loan requirements.
For a VA Purchase loan cash back is only marginally allowable. The cash back received by the military member will be limited to the capital contribution of the borrower. For example, a purchaser may be able to receive their earnest money deposit or fees paid for an appraisal back but nothing beyond that.
In regards to purchase loan cash back, the VA Lender’s Handbook reads “For… 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.”
An example of this scenario would be if the borrower paid upfront for energy efficient improvements to the home and was then reimbursed for this payment. No exceptions exist that allow for cash back on a VA Purchase loan if they did not put down money upfront.