VA Refi -Bring Extra Cash to Closing or Pay Down Principal First?

Question

I had a VA refinance set up, my VA appraisal for the LTV came in at 90% which is a problem.

Now the company says it can't go through unless I bring the difference of about $11,000 extra cash to closing. But from what I gather the company will just pocket the cash as profit, and my loan amount will remain the same. Would it be better for me to pay the $11,000 on my own first, to pay down the principal on my current mortgage?

Then my loan amount will be below 90% and my refi loan will be $11,000 less.

I am suspecting that I benefit if I pay my principal down on my own first on my current mortgage, rather than bring extra cash to closing to the new refi company. Is that a correct assumption?

Chris Mason · Answer

That money is going to the old lender, not the new/current lender.

None of us like asking anyone to come in with money during a refi because of a low appraisal, trust me.

James B. · Answer

Hi Upen. My VA appraisal was $478,700. The balance on my current (non-VA loan) is $430,830 - the lender says the VA funding fee is $9,262. So the total is about $440,000, which is 91.9% of the appraised value. My original loan did not use the VA loan benefit, and according to VA rules that makes it a "cash out refinance" VA loan, and those have a limit of 90% apparently. The lender I am working with now says they can't do it unless extra cash is broght to closing.

Upen Patel · Answer

@James B. What you are saying is not making sense.

If I understand what you are saying correctly, the new appraisal came in at 90% of your existing loan amount. VA only allows up to 100% of appraisal financing. So to complete the refi, you have to put in the difference to bring the loan amount to the appraisal value.

NO, the money DOES NOT go to the lender as profit. The funds are part of your payoff to your existing lender.