VA Loan Guidelines: Cash Out Refi and Home Buying

by Jack in Scottsdale, AZ and by Casey in Shreveport, LA

Ask Kate about military VA loan guidelines for cash out refinance and home buying: The process of getting a veteran's home loan has improved significantly over the years. Even so, you'll still find a couple of quirks when comparing VA loan guidelines to conventional and FHA financing.


Case in point, meet Jack who owns his home free and clear yet wonders if he'll qualify for a new VA cash out refinance. Comparatively speaking, Casey's problem is more universal - For some unknown reason, her loan officer won't allow her to state tip income on her mortgage application or give her credit for the earnest money deposit.

Keep reading for my thoughts and solutions...

VA Loan Guidelines: Cash Out Refi

By Jack S from Scottsdale, AZ
VA Cash Out Refinance


Can I get a VA cash out mortgage refinance if I own my home free and clear?

***zz-portrait-left.shtml*** Ask Kate answers: VA Cash Out Refi

Hi Jack,

VA cash-out refinancing is a homeowner's dream. Owner-occupied borrowers can tap into 100% of their equity with no out-of-pocket cost. The cash can be used to get out of debt, pay college tuition, or even make home improvements.

Icing on the cake, there is no mortgage insurance.

Depending on qualifications, borrowers can choose between the stable 30 year as well as 15 year fixed rate mortgage terms. From time-to-time, VA also offers a pretty decent low-risk adjustable rate mortgage.

VA is not picky about the type of mortgage the new loan will be paying off. The present lien may be conventional, FHA, VA, or non-VA home loan financing.

Cash Out VA Home Loan Catch

But there's a catch. Although the Veteran's Administration guidelines allow for cash out refinancing, only homeowners with a current mortgage are eligible to apply. In other words, the home may not be owned free and clear. It must have current financing to be eligible for new VA cash out refinancing.

So ask your mortgage originator if FHA financing could possibly be a good alternative for you.

For those not familiar with dedicated home loan financing for active military and veterans, go here to read about VA Mortgage Loans. Please remember to pass this on to your friends and family members who are or have been in the military.

Solving Cash Out Refinancing Problems

Are you having problems tapping into your home's equity? Learn how to solve cash out refinance woes, regardless of the type of financing.

Best wishes,


Source of Closing Funds: Tip Income and Earnest Money Deposit

By Casey from Shreveport, LA
Source of Closing Funds for VA Home Loans


My husband is active duty military and I am a tipped-wage waitress.

Our loan officer is trying to keep us from using my cash tips anywhere at the closing table. She has told us we can't deposit the cash into our bank account or even use it to pay bills.

Now she is telling us our earnest money deposit cannot be used at the closing table either.

Every time we talk to her she is throwing in some other contingency of how we can use our money. The only option she threw at us was to get a relative to "gift" us money and show their sources of income!

I have two years of verifiable tipped income. What can we do to use OUR money at the closing table that I rightfully earned?

***zz-portrait-left.shtml*** Ask Kate answers: Tip Income and Earnest Money Deposit Problems

Hi Casey,

While the lender's representative is responsible to inform you of VA guidelines, if you are feeling queasy over her advice regarding your tip income and earnest money deposit, pay attention to your gut and investigate this further.

Here is what VA says about using tips to qualify for a mortgage. If you have received steady tip income for the past two years and the income is not declining in the current year, it can be averaged over the last 24 months to be used as a factor in qualifying.

But this is also dependent on the tips being clearly verifiable on the paystubs. Some underwriters will even ask for tax returns.

If you feel your tip income meets VA guidelines, ask the loan officer why she is so reluctant to use them.

Crediting Earnest Money Deposits at Closing

Assuming the earnest money deposit came from the account related to the bank statements you supplied to get loan approval, I am not sure why she is suggesting you replace it with a "gift" from a relative.

Not only is this a total inconvenience to family members, I can tell the idea of temporarily borrowing the money bothers you.

It could be that your lender representative does not know how to create a papertrail. Or she might be afraid to ask you for the needed documentation to source the funds. So when you talk to the loan officer, reassure her that you are willing to go to the bank and obtain whatever paperwork she needs to verify the EM deposit.

Don't hesitate to thoroughly question her until you get satisfactory answers. But first read this: Learn how to help your mortgage lender calculate your income. (Scroll down to the second letter on the page from Mark in California.)

You also can write back to me (use the comment link at bottom of this page) if talking with her creates more questions.

Best wishes,


Have You Seen These Ask Kate Answers

You are invited to ask Kate a mortgage question. Or you can post a comment by clicking the link near the bottom of this page. ***zzz-link-harp-news.shtml*** ***zz-newsletter.shtml***

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Follow Up to Previous Question on VA Cash-Out Refi
by: Jack in Scottsdale, AZ

If I got a HELOC would that satisfy VA's requirement for a lien? To be honest, the only reason I'd get a HELOC is so I could get a VA cash-out refi. What do you think?

Thank you.

Jack S.
Scottsdale, AZ

Hi Jack, Kate here...

VA guidelines require the home to have a first lien to qualify for cash-out financing. So the real question is would they consider that a HELOC (Home Equity Line of Credit) is a first lien since it is traditionally intended to be a second mortgage.

Additionally, the underwriter could have an issue with the lack of seasoning on the HELOC. They may require the HELOC to be aged so they can see a pattern of timely house payments.

I wish I knew for sure. I think you need to ask a reliable mortgage consultant, experienced in VA loan guidelines, who can take your question to an underwriter.

Best wishes, Kate

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You can also ask Kate about your mortgage at How to Find Your Mortgage Lender.

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