A Consolidation loan is a program that has been used for years to “lump” all of your payments into one loan. Let’s say you have a Car Payment, and 2 credit cards – and the total debt is $9,500. With a consolidation loan, you would get a loan for $9,500 and then only make one payment. We’ve had some questions recently from folks who know that the Real Estate market is getting better – and they want to know if they can do a Consolidation of Bills With a VA Loan when they buy their house.
In other words, these guys want to buy a $170,000 house, and get a VA Loan in the amount of $179,500 (from our example above) and then only have a house payment. “Because we would be paying it all off in 30 years, I just calculated my payments, and it’s Waaaay cheaper to do this,” said one Vet this week.
Well, he’s right – except that is not what the VA Home Loan is designed to do. The VA list of acceptable loan purposes for a VA mortgage include the ability to buy or build a home, or refinance an existing home loan.
The Veteran’s Administration is in the business of doing Loan Consolidations. And frankly, I’m not sure you would want to do that, anyway.
Okay, so in the short term, the payments are lower as you spread them out over 30 years – but there’s no way you are keeping a car for 30 years, why would you want to pay interest for that long? Additionally, having revolving credit accounts (charge cards) are what is keeping most peoples scores UP right now. You don’t want to close those accounts!
VA borrowers won’t find any mention of using a new purchase VA home loan that includes a debt consolidation feature-the VA does not allow new purchase home loans to include more money than the actual purchase price or fair market value of the loan, whichever is lower, plus any allowable add-ons. No extra amount can be included in the VA mortgage loan for debts, bills or cash back to the borrower.
Although many lenders are not offering them at this time – the VA loan does offer a “Cash Out Refinance” feature. In that one particular case, you will be able to refinance, and draw cash out of your home for any number of purposes, including adding energy efficient items to the home – as long as you qualify for the new payments, and the property appraisal supports the equity gap. The Cash-Out Refinance VA Loan can also be used to refinance a non-VA loan into a VA loan. VA will guaranty loans up to 100% of the value of your home.
Do you have questions about Consolidation of Bills With a VA Loan? Or a Cash Out Refinance with a VA home? Call Steve and Eleanor Thorne 919 649 5058, or leave us a question below, we try and answer them all!