f. When Can the Borrower Receive Cash at Closing?

An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced.  Loan proceeds may only be applied to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL.  Therefore, the general rule is that the borrower cannot receive cash proceeds from the loan.  (If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran)

The one exception is reimbursement of the veteran for the cost of energy efficiency improvements up to $6,000 completed within the 90 days immediately preceding the date of loan closing.

Note: Use of loan proceeds for energy efficiency improvements not involving cash reimbursement of the veteran is also an option.  See section 3 of chapter 7.

In addition, there are situations which come about at closing which may result in the borrower receiving cash.  Some examples of situations for which VA does not object to the borrower receiving cash are

·  computational errors

·  changes in final pay-off figures

·  up-front fees paid for the appraisal and/or credit report that are later added into the loan, and

·  refund of the escrow balance on the old loan.  This often occurs when a party other than the present holder originates the loan.