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Why a VA Cash-Out and Rate & Term Refinance Is a Good Choice

On This Page
  • Cash-out and Rate & Term Refinances
  • The VA Streamline Loan (IRRRL)
  • VA Loan Refinance Q & A

The VA loan program helps veterans buy and refinance homes with more favorable loan terms than those found in the open mortgage marketplace. If you are a veteran with a mortgage on a home that's your primary residence or that you previously occupied, and you want to refinance, a VA refinance may be the best option.

Why go with a VA refinance? A VA refinance offers significant advantages. Because the VA's insurance guaranty essentially sets up a financial safety net for the VA lender, a lender can pass more advantageous loan terms along to you, the veteran. If you've financed a home purchase with a VA loan before, you probably already know about some of these advantages. You receive the same benefits in a VA refinance, including limits on closing costs, no prepayment penalty and no private mortgage insurance requirement even if your down payment is less than 20 percent.

Conventional VA Refinance Gives you more choices - cash-out or rate-and-term options - but it takes more time and costs more when compared with a VA Streamline IRRRL

Cash-out and Rate & Term Refinances

You can refinance your primary residence using the VA's Cash-Out and Rate & Term Refinance for two purposes: to cash out equity from your primary residence or to change your mortgage interest rate, term or both. If your current mortgage is a non-VA loan and you want to refinance through the VA loan program, the Cash-out and Rate & Term Refinance is your only option.

You can use the cash-out of your home's equity for many purposes: pay off credit cards, fund tuition expenses, make improvements or conduct repairs to your house. The application process for this type of refinance entails a longer, more involved process than that of a conventional application or the VA's Streamline Interest Rate Reduction Refinance Loan (IRRRL).

How you can prove source of cash deposits to escape income tax scrutiny

  • If you are unable to explain such cash deposits, you may have to pay income tax as well as penalty
  • Some taxpayers seek to prove the source as being gifts or loans received by them from family or friends

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In the recent ongoing scrutiny assessments for financial year 2016-17, one of the main items of verification, particularly in cases of individual taxpayers, has been that of the source of cash deposited by taxpayers in their bank accounts. The rationale for this is the fact that large cash deposits were made during the year by many taxpayers at the time of demonetization.

What is the implication if one is not able to explain such cash deposits? Tax is leviable on such deposits at 60% (plus surcharge and cess), along with interest at 12% per annum from ). Besides, a penalty can be levied at 200% of the amount of tax. Effectively, therefore, a taxpayer ount of deposit by way of taxes and penalty, besides applicable surcharge and cess. Not only that, if the amount is large, the taxpayer faces a potential prosecution as well, with a potential for rigorous imprisonment from three months to seven years, as well as a fine. A stiff punishment indeed for tax evaders.

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If one has deposited cash, how does one prove the source of the cash? Some taxpayers seek to prove the source as being gifts or loans received by them from family or friends, some may claim it to be deposited out of income, out of earlier cash withdrawals or cash in hand at the beginning of the year.

In cases of gifts or loans, one has to prove three things in relation to such explanation-the identity of the payer, the capacity of the payer to pay such amount and the genuineness of the transaction.