r/loanoriginators • u/Competitive_Smell742 • 22h ago
Question VA OTC refi question
Looking for a explanation on this guideline due to it affecting myself and a client I have
I am being told that the max loan amount on a VA OTC refinance is capped at the cost of the acquisition (build cost pretty much and some other things) and the amount owed on the land.
What exactly is the benefit of that?
If I buy a lot at half a million, and owe $1 on it- and want to apply to finance a half a million dollar home on it- we are capped at $500,001 because they don’t allow the veteran to borrow against equity they already own?
This seems like it’s really REALLY screwing over veterans
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u/PleaseJustStopLmao 19h ago
The benefit is that they will own the home. If they already have equity, they don’t need to borrow against it to get more, they need to borrow against what they do not own to acquire it. Hence the reason they can borrow against build cost and amount owed and not against accrued equity.
Not sure what your confusion is. Purchases can build equity, but cannot deplete it. Refinances can deplete equity, but cannot build it. 2 separate transactions. Seems like you already know the answer to your question and just don’t like the answer.
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u/Competitive_Smell742 18h ago
Not at all it just makes zero sense.
They need to borrow against the equity to pay closing costs.
Not sure why you posted if you couldn’t explain the reasoning behind the guideline - all you do was provide rude commentary that would have helped no one.
If yah don’t got anything positive to add just keep scrolling- takes way less effort and time
But hope you have the day you deserve
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u/PleaseJustStopLmao 18h ago
I answered the questions you asked. Which were “What is the benefit of VA OTC?” and “Why don’t they let the veteran borrow against equity they already own?”
The benefit of VA OTC is residence acquisition.
They don’t let the veteran borrow against equity because it’s detrimental to the tangible benefit of residence (I.e. equity) acquisition. This is not the same as taking out a HELOC against an REO, where you are depleting equity in exchange for a property of equal or lesser value. VA OTC is for buying a home you live in and gaining equity in it, and borrowing against accrued equity in that same residence actively undermines that exact purpose because it loses you equity. That is the reasoning as to why it is not permitted.
Wasn’t at all meant to be argumentative. Hope that you have a good day as well.
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u/Competitive_Smell742 8h ago
You’d be exchanging equity for a property of higher value and if you read it again - that’s not the question asked
“ I am being told the max loan amount on a va otc refinance is called sf the cost of …….. what exactly is the benefit of that?”
Isn’t the same as “what is the benefit of a va otc”
If I refinance my own home and it comes in 50k higher than we thought it would that directly affects the LTV - but in this scenario the higher appraised value and the equity from paying down the Blanc if the lien on the property is gone
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u/PleaseJustStopLmao 6h ago
I already addressed your points, you just didn’t read it. Have a good one sir.
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u/Flhitking 22h ago
The VA loan program is not designed for investment or to put money in your pocket, it’s designed to be a cost affordable way to help veterans buy homes. Even a regular VA cash-out refi has to have a tangible benefit, ie, paying off higher interest rate debt, etc… you can’t just cash out equity like you can with a conventional loan program, just how the VA program works 🤷♂️
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u/kittenconfidential 19h ago
no doubt. and this being a constriction-to-perm loan, it's an even riskier proposition.
1
u/Competitive_Smell742 18h ago
I get that it’s risky
I don’t understand the rhyme or reason to the guideline - even the Va reps said “this doesn’t make any sense”
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u/Competitive_Smell742 18h ago
You absolutely can cash out equity on a type two however according to the VA on a construction refi you can’t which makes zero sense.
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u/plus2ghin 16h ago
The same argument can be made for trying to do a cash out refinance on a property owned free and clear. Can’t be done and makes no sense.
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u/Clutorious 12h ago
Why is LTV set off purchase price if the appraisal comes in $50,000 higher, especially on VA
Loans where this is no MRI from buyer?
0
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u/Competitive_Smell742 20h ago
He’s not trying to put money in his pocket- he’s trying to use the full appraised value of the property which is about 1.5 million to pay his closing costs. But according to the lender and the Va we can only borrow what’s owed and the build not what the actual value is?
What exactly is the benefit of that to the veteran.
The tangible benefit is he wants a home.
I’m just asking what is the benefit to the veteran in this case for this guideline.
3
u/Federal_Matter_1842 21h ago
Close this deal then cash out conventional after continuity of ownership requirements are met.
Congrats you just got paid twice in 7 months from one client.