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Secured vs. Non-Secured Funds and VA Loans

By: Grant Moon 01/27/14 08:05 am

Secured vs. Non-Secured Funds and VA Loans

When lenders evaluate a VA home loan application, the approval is based primarily on credit and the ability to repay the future mortgage. In addition, the veteran must show where the funds are coming from to cover associated closing fees the VA lender will require for such things as appraisals, title insurance and origination fees among other allowable charges. Typically these funds come from the borrower’s bank account. What are considered “allowable” funds to be used for closing a VA loan?

Closing cost funds can be borrowed but only under specific guidelines and broken down into two distinct types—non-secured and secured.

A non-secured source is like a cash advance on a credit card or a personal loan. There is no collateral involved therefore the unsecured status. A secured loan however is allowed when properly documented.

For example, borrowers with a qualifying 401(k) program can borrow against their 401. Borrowers can borrow against an appraisable asset they own. Interestingly, this form of borrowing can provide a few unique scenarios. One of the most common occurrences borrowing against an appraisable asset is an automobile. An automobile can be appraised by a third party and a lender can provide cash to the borrower and apply a lien on the vehicle.

This method can be taken to an extreme with something as odd as a baseball card collection or a set of rare books. As long as the items can be appraised independently and the VA lender accepts the appraisal, there can be untapped equity used to buy a home using your VA home loan benefit.

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