Veterans and service members frequently ask: are VA loans available for boats or RVs? Unfortunately, no, you cannot use the VA loan to purchase one of these vehicles – even if you plan on living in them. But, VA loan refinance options exist to help people purchase boats or RVs. And, we’ll use this article to outline how to use this strategy.
Specifically, we’ll discuss the following:
- VA Loan Overview
- VA Loan Cash-out Refinance
- Using VA Loan Cash-out Refinance Proceeds to Buy a Boat or RV
- VA Cash-out Refinance Eligibility Requirements
- Additional Considerations to This Strategy
- Final Thoughts
VA Loan Overview
The VA loan offers eligible veterans and service members an outstanding mortgage option. Administered by the Department of Veterans Affairs, this loan program has the following terms:
- No down payment required
- No private mortgage insurance (PMI) required
- Low interest rates
- Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)
With these incredible terms, many eligible borrowers want to push the limits of what property qualifies for a VA loan. Of note, people frequently argue that if they live in a boat or RV, they should be able to use the VA loan to purchase these vehicles.
Unfortunately, the VA imposes strict criteria for what property does and does not qualify for VA loan financing. While these criteria can get complicated, they ultimately boil down to one disqualifying factor for boats and RVs: VA loans need to be used to purchase real property. Due to the fact that these vehicles do not possess fixed foundations, they cannot be considered real property, meaning they do not qualify for VA loan purchases.
VA Loan Cash-out Refinance
While the VA doesn’t allow direct VA loan financing to purchase a boat or RV, an alternative exists for eligible homeowners. In addition to using the VA loan to purchase homes, eligible borrowers can take advantage of the loan program’s cash-out refinance option.
This program allows eligible veterans to replace their current conventional or VA loans with a new VA loan under different terms (rate and repayment period). And, if you have equity in your home, the VA cash-out refinance, as the name suggests, allows you to refinance into a larger loan, pocketing the difference as cash.
Every VA-approved lender will offer different terms, but many will allow veterans to borrow up to 100% of their home’s current value on this refinance – not just on the original loan. According to VA guidance, without a down payment, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limits for your area.
Using VA Loan Cash-out Refinance Proceeds to Buy a Boat or RV
As stated, eligible homeowners can refinance their current conventional or VA mortgages with a VA cash-out refinance loan. And, as long as you meet your area’s conforming loan limits, you can pull out cash in the amount of equity you have in the property.
For example, assume you purchased a home several years ago, and you have a current mortgage balance of $200,000. For a cash-out refinance, it doesn’t matter whether that’s a conventional or VA loan mortgage. Now, let’s say that, following a VA appraisal, your home has a current value of $300,000. This means you have $100,000 in equity in your home ($300,000 appraised value minus $200,000 mortgage balance). Accordingly, you could refinance into a VA loan up to $300,000 and put the $100,000 difference between the new and old loan amounts into your pocket as cash.
For veterans and service members who A) own homes, and B) have equity in them, this cash-out refinance offers a great strategy for indirectly financing a boat or RV. While the VA has guidelines on who qualifies for a cash-out refinance, it doesn’t tell borrowers how they can spend the cash-out proceeds. Borrowers can absolutely use these funds to buy a boat or RV.
And, you don’t need to refinance into a new 100% loan-to-value mortgage. In other words, following the above example, you could refinance into a loan smaller than your home’s $300,000 value. Let’s say the boat of your dreams costs $50,000. You could refinance into a new $250,000 VA mortgage, taking $50,000 out in cash while keeping your monthly payments lower than they would be with a $300,000 mortgage.
VA Cash-out Refinance Eligibility Requirements
Looks great – do I qualify?
For veterans to be eligible for a VA cash-out refinance, they need to meet all of the following requirements:
- Qualify for a VA home loan, as demonstrated by your Certificate of Eligibility (COE)
- Meet the VA’s and lender’s standards for income, credit score, debt-to-income ratio, and any other financial requirements
- Will live in the home – as a primary residence – you’re refinancing with the cash-out loan
This final requirement poses a potential obstacle to this strategy. If veterans want to use refinance proceeds to purchase an RV or boat to live in, they will not be able to do so immediately. The VA generally requires borrowers to live in a home for at least a year following a purchase or refinance. However, with some advanced planning, this shouldn’t be an issue.
Additional Considerations to This Strategy
Just because a borrower can pursue this cash-out strategy doesn’t mean he or she should. Before using VA cash-out refinance proceeds to purchase a boat or RV, veterans and service members should think about these additional considerations:
- Increased monthly payments: When you refinance into a larger loan, you’ll inherently have larger loan payments. Assuming 3.5% interest and a 30-year loan, the monthly principal and interest payments for a $300,000 loan will be roughly $450 more per month than a $200,000 loan.
- Increased total interest payments: Interest represents the amount you pay to a lender for the privilege of borrowing money. As such, most borrowers want to minimize their mortgage interest payments. Over the life of a $300,000 loan with the same terms as above, borrowers will pay roughly $57,000 more in interest over the life of the loan than with a $200,000 mortgage.
- Depreciating assets: In most situations, homes are appreciating assets, meaning they become more valuable over time. Most homeowners justify borrowing money to pay for a home based on this characteristic. Conversely, RVs and boats are depreciating assets, meaning they become less valuable over time. Borrowing money to buy something that loses its value isn’t always a wise personal finance decision.
No, you cannot use your VA loan to purchase a boat or RV. But, as this article illustrates, you can use a VA cash-out refinance on your primary residence to indirectly finance the purchase of one of these vehicles. But, before doing so, make sure you’ve balanced the associated costs of a larger loan against the benefits of owning a boat or RV.
Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.
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