One of the ways in which the VA Loan program is different (and potentially better) than other loan programs is that it provides the unique ability for a new home buyer to pay off debt at closing if sufficient credits exist. No other home loan program provides this benefit.
Of course, situations vary and every loan scenario is unique, but if you are one of the lucky home buyers to have negotiated a seller credit (or have a credit from your real estate agent), you may be able to use some or all of that credit to pay off debt.
What Can You Do with a Surplus of Closing Credit?
As a lender, it’s our priority to help you obtain the lowest possible rate and monthly payment available. However, sometimes there are situations where a borrower’s total cash to close is less than the amount of lender and/or agent credits that they have available; that means there is surplus closing credit available. Rather than let that go to waste, the VA will allow the buyer(s) to use that credit to pay down or pay off outstanding consumer debt.
Curious to know about some examples of these? Read below to learn about how Hawaii VA Loans clients have used seller credit to pay off their debt.
Real Life Example #1: VA Buyer with Credit Card Debt
In October of this year, we closed a loan for a veteran on the Big Island. He and his agent negotiated a $10,000 seller credit towards closing costs through which he was able to “buy down” his interest rate and cover closing costs. After doing both of those, he had about $1,000 in credit remaining. We used that to pay down the balance on his American Express card.
Real Life Example #2: VA Buyer with a Fishing Boat Loan
Several years ago, we were able to help a veteran pay off his fishing boat! Sounds hard to believe, but here’s how it happened. He had rented his house on Kauai for many years when his landlord informed him that he wanted to sell. The veteran loved the place and didn’t want to move. He contacted us to see if there was any way he could purchase the property. He was able to negotiate a $15,000 credit with the sale and after covering closing costs had enough remaining to pay off the balance of the loan on his fishing boat. Keep in mind that this is probably a once in a lifetime occurrence and isn’t likely to happen for most of us!
The VA Loan Program Is Here to Help
The important point to take away from all of this is the understanding that the VA program is structured in a way to help veterans in many ways that other loan programs cannot . . . and that seller credits can be extremely beneficial.