VA LOAN CAPTAIN BLOG & Learning Center

First and Second

By: Grant Moon 09/03/14 10:06 am

Financing a home using a VA mortgage typically means there’s no down payment at the settlement table. If the buyer did want to put down a sizable down payment then the VA home loan may not be the best choice. Zero down is a huge benefit for veterans saving money at the closing table but that also means it will take some time for equity to build. As each mortgage payment is made a portion of the loan balance is paid down and the property can also appreciate in value. That also means cash out refinancing with a VA loan isn’t all that common as most VA lender limit the cash out loan to 90 percent of the current value. But there can also be other liens on the property in addition to the VA loan. How can that be?

A common lien is a second mortgage used for home improvements or an addition. Maybe the owners financed a kitchen remodel with a $20,000 home improvement loan. Some banks may offer a home equity line of credit which will also be in a second position behind the first mortgage. There also times when certain borrowers work with the IRS with an installment plan to pay off back taxes. In this instance, the IRS will also file a lien until the taxes are paid and the lien released.

What happens if the owners want to refinance their existing VA mortgage with a subordinate lien? The second lien holder must agree to remain in a subordinate position by signing a document called, appropriately enough, a subordination agreement. The agreement guarantees the VA lender will remain in first position. When the home is ever sold, it is the first mortgage that gets paid first and any remaining liens after that.

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