Posted on: February 28, 2018
For many home buyers, finding the perfect home might seem impossible. Move-in ready homes are hard to find, and when they are available, the cost can be well above what most home buyers can afford. Fixer-uppers are appealing but securing the funds to pay for the necessary work can be a difficult process.
But with the help of the VA renovation loan, eligible home buyers can find the perfect fixer-upper and get the money to improve the home.
The VA renovation loan, also known as the VA rehabilitation loan, is a VA guaranteed loan program that allows home buyers to buy a home a fund up to $35,000 in repairs and improvements.
The goal of the VA renovation loan is to make a home meet the minimum standards to qualify for VA financing. Because you’ll be getting a loan for the home before the repairs are even made, getting this loan program can be a bit more of a process than normal VA loans. However, once you’re done, you’ll have a fixed-up home with a VA loan attached.
The most important thing to understand about the VA renovation loan is that it is a second loan, but it works differently from a normal supplemental loan. Instead of having two separate loans, the VA rehab loan will be rolled together with the original loan, meaning you’ll only have one mortgage rate and monthly payment.
Because the goal of the program is to make the home VA eligible, you’ll have to prove that the repairs you’re planning will meet VA standards.
Before getting approved for the program, you’ll need to submit plans for the specific renovations being made, as well as information on the contractor you’ll be using. This all happens during the underwriting process.
So, before you get approved, you’ll need to have a very specific idea of what improvements you’ll want to make, as well as how much those improvements are going to cost. This takes time, and it can slow down the home buying process.
After the repairs are made, a VA Inspector will come to make sure the home meets the standards.
There’s a maximum of $35,000 allowable through this loan program, but there’s no minimum amount to be spent in order to qualify. So, if qualify and only want to make $5,000 in renovations, that’s completely acceptable.
One thing to note is that you can’t use the renovation loan to change every part of the home. Only repairs, renovations and replacements approved by the VA are allowed. Again, the point of this loan is to make the home livable while meeting VA standards.
Common improvements allowed by VA rehab loans include:
It’s worth noting that all VA loan programs allow the home buyer to make energy-efficient upgrades – a win-win for the buyer since this increases the value of the home and decreases monthly energy payments.
Anyone who is VA eligible is able to get approved for a VA renovation loan.
Also, current VA eligible homeowners are eligible to get this loan. The VA renovation loan can be used for refinancing to fund upgrades to your home. This is a good way to avoid using a cash-out refinance or getting a second mortgage.
To use this loan program as a refinance, homeowners must still follow the same improvement restrictions as home buyers.
As good as the VA renovation loan is, the biggest drawback is that it can be difficult to find a lender that offers the program.
The best way to find a lender willing to offer this type of loan is to check with multiple lenders all at once.