How to Use a VA Loan to Buy Out Half a Home Currently Paid for

By Joey Campbell

When you own a home with your spouse or partner, you are both on the deed. This means you both have the same amount (50/50 percent) of interest in the property. In a split, it is common for one owner to buy out the interest of the other. This is accomplished in a cash out refinance with one owner taking out a mortgage to fund buying out the other person. The buyer gains full ownership in the property, and the seller gains 50 percent of the value of the property in cash.

Go to annualcreditreport.com and request all three credit reports. This is free to you one time per year. You can get your credit scores, but there is a small cost for each score. If you have moved recently, the system may not recognize you, and you may need to make your request by mail. Download and fill out the form provided for this, and wait for your reports. When they arrive, open and preview the credit scores. Go over all of the accounts to see if there are any accounts that are in error, duplicated or outdated. Dispute these by calling the customer service numbers listed on page one of each report. This can take 30 days, but doing this will increase your credit scores.

Call your favorite mortgage lender or broker to discuss your plans. Most lenders require at least a 640 credit score to approve any loan, so be sure your scores are workable. Gather all of your documents (two years of W2s, 30 days of pay stubs, banking or asset information, DD214 (discharge document) and certificate of VA eligibility, deed and survey, proof of identification and your declaration page from your insurance policy). Make an appointment with your lender or broker.

Meet with your lender at the appointed time. He will take the application information from you and make copies of your documents. When the application is completed, he will make sure your debt ratios are acceptable, and will request a tri-merged (all bureaus combined into one) credit report with credit scores. When this is completed, he will be able to run an automated underwriting report. This will give a preliminary approval pending a completed file with a property appraisal. Your lender will prepare a document package for you to sign, and the file will go to processing. Processing will order a CAIVRS (credit alert interactive voice response system) report and a VA indebtedness search to verify that there are no government backed loans that are outstanding or in default.

Allow the lender to order the appraisal. This is important since the acceptable value will be decided, and you will know exactly the loan amount you need to request. This is a good time to be sure the home is presentable. Paint touch-ups, small repairs, cleaning and yard maintenance should be completed before the appraiser visits the home. Replace any broken glass and haul off clutter or debris.
A VA appraiser will issue a CRV (certificate of reasonable value) report.

Stay in touch with the lender who will give you the value of the home, and any figures in the loan request can be adjusted. You should have the interest rate locked in, and the file can then go to underwriting for final approval. During this time, the lender will have contacted a title company or real estate attorney to close your loan. You will need to have your partner or spouse contact the closer to create and sign a quit claim deed. This is a deed that has your partner "quitting her claim" on her interest in the property and giving it to you so you have all control of the property. This is necessary since the partner is giving up 50 percent interest in exchange for the dollar value being paid.

Your lender will call your insurance agent to add the new lender to your insurance policy. Wait for a clearance from underwriting to close the loan. Go sign your closing documents at the appointed time, but remember: Federal law requires you to wait three business days before the funds can be disbursed. This is a window of time for you to decide if refinancing is a mistake. You have the right to change your mind and back out of the transaction.

If you are unable to get your certificate Of eligibility (COE), the lender will be able to order one for you. This is available online and easy for lenders to access.

You may be able to pull more cash out of this transaction if you qualify. If you choose to do this, speak with your lender for the amount and to make sure you qualify.

In this type of transaction, you will be able to roll all closing costs into the loan. When the money is disbursed to the partner being bought out, you should have an agreement on splitting the closing costs, unless you are planning to add them to the loan amount and pay for them over the life of the loan. Splitting the costs will affect the amount of funds the partner will receive.

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