With just about every house, there comes a time when home improvements are desired or required. It may be a necessary repair, minor upgrades, or a full remodel of the home.
When it comes to homeowners who are active military service members, military Veterans, disabled Veterans, or a surviving spouse of a deceased service member, many wonder if the Veteran’s Administration offers a VA home improvement loan.
There are a few beneficial options provided through VA loans. One solution requires home equity equal to the amount of improvements. Another helps homeowners that do not have much equity in the home and allows for the use of “after improved” appraised value. Additionally, a no down payment purchase which may include up to an unlimited amount of nonstructural home improvements is available with the second option.
VA Home Improvement Loan for Homes With Equity
Home equity is achieved either by paying down a mortgage balance, home appreciation, or a combination of both. Homeowners with equity may qualify for and utilize a cash out VA home improvement loan. Most realize VA loans offer a no money down purchase option. Although, did you know that VA eligible borrowers may also borrow up to 100% of the VA appraised value for a VA cash out loan? Plus, an allowed use of these funds includes home improvements. Therefore, homeowners with enough appraised value to pay off any existing mortgages, VA loan closing costs, and the amount required for home improvements have a great financing option.
The VA appraisal must meet VA minimum property requirements to pull funds from the property without a full-blown renovation loan. If there are VA appraiser required repairs, they must be fixed before closing. Then, the VA appraiser would reinspect to verify the home meets VA minimum property requirements. Assuming there are no appraisal issues and the borrower qualifies, then closing a VA home improvement loan as described above is possible.
VA Cash Out Loan Benefits
So, why are VA loans such an excellent option for completing home improvements? There are several reasons (this is especially true if borrowing a higher percentage of the appraised value). Here are just a few:
- No monthly mortgage insurance – Keeps payment down
- Borrow up to 100% of the appraised value
- Include closing costs in the loan
- Flexible guidelines – Easier to qualify compared to many loans
The percentage of appraised value limits other popular loans. For instance, FHA and conventional loans allow a maximum of 85% of appraised value. Plus, each requires monthly mortgage insurance if borrowing over 80% of the value. Thus, homeowners have access to an additional 15% of appraised value, which means more home improvements and a better chance of including closing costs in the loan. Finally, in many cases, VA loans have more lenient credit, debt to income, and other requirements.
VA Loan Requirement
VA refinance loans have one little-known quirk when it comes to a cash out refinance. For a homeowner to close a VA cash out refinance for home improvements or any reason, the home must have an existing lien. That means a free and clear home is not eligible for a VA home loan. So, a Veteran homeowner owes nothing on a home worth $200,000; a VA loan is not an option for a refinance, but if the homeowner has a first mortgage or home equity loan in place with even a $100 balance, a cash out refinance is possible. No other traditional cash out refinance loan has this requirement.
VA Home Improvement Loan Refinance With Little Equity
Using a traditional VA cash out loan is an excellent option for homeowners, but only if there is sufficient equity. Even though VA loans allow borrowing to 100% of the value, sometimes that is not enough for the desired improvements. What if a homeowner wants to spend $50,000 on home improvements, but there is only $30,000 in home equity? Using a traditional VA cash out loan would only net $30,000 minus closing costs. Conversely, a VA renovation loan goes by the appraised value after improvements. So, if the appraised value subject to the expected improvements creates $50,000 in equity, the homeowner has access to $50,000 minus closing costs.
VA Renovation Loan Improvements Allowed
The VA renovation loan only allows for nonstructural improvements. Major renovations such as moving a wall, room additions, or foundation repair are not allowed. Also, mold abatement is not allowed on VA renovation loans. Examples of nonstructural repairs allowed include the following and more:
- Painting interior and exterior
- Replace carpeting
- Hardwood floors & tile
- Plantation shutters
- Roof repair & replacement
- Crawl space encapsulation or enclosure
- Bathroom renovation
- Kitchen renovation
- HVAC replacement
- Water heater replacement
- Termite damage – Learn about VA termite inspection requirements
- Vinyl siding
- Gas logs
- Built in shelves
If you are a homeowner, you have dreamed of the changes that could turn your home into an oasis. You just can’t help it if you watch HGTV at all! With the ability to borrow additional money towards improvements and costs, while using up to 100% of the after completed value, a dream oasis could be a reality.
A VA home improvement loan is not just for homeowner desired improvements. During a VA refinance, there could be VA appraiser required repairs. What happens then?
VA Appraisal Required Repairs
Sometimes the VA appraisal requires repairs at such an amount that the homeowner does not have the funds to fix them before closing. A reasonable Veteran response would be “I am getting the loan for home improvements, so what is the big deal?” That makes sense, but if a traditional VA cash out loan closes and provides the cash to the homeowner, there is no guarantee the work gets done. Anything could happen. So, switching from a VA cash out loan to a VA renovation loan could be the solution!
As mentioned, the VA renovation loan allows for using the “after improvements value” or “as-completed value.” The loan is fine with necessary repairs as long as the remedies are included in the home improvement contract and the loan. Which means the loan closes, work is completed after closing, and final funds are released once the VA appraiser has verified completion of all work. Rather than a possible denied VA loan because of property condition, the homeowner can complete the required repairs and possibly other desired improvements. Quite the solution for a Veteran homeowner!
VA Renovation Loan Allows Home Improvements on a Purchase
Do what? That’s right! Most people have not heard of the VA renovation loan. Not many lenders offer this option, so it has flown under the radar. If one peruses some VA home improvement loan articles, the answer is pretty consistent. They do not exist. Technically, that is right as the Veteran’s Administration does not provide this home improvement option. Lenders create the program, allow renovations, and once the work is complete, the loan is presented for VA guaranty.
VA Renovation Loan Purchase Benefits
- Expand home search to include fixer-uppers
- Combine home price and renovations
- Borrow up to 100% of the combined price & renovations
- Use the “as completed” appraised value
- Complete home improvements now instead of later
- Keep savings in place
- One loan and payment
This will blow Realtors’ minds! Realtors do not have to skip homes sold in “as is” condition. Usually, VA buyers must skip homes needing some TLC because of the VA minimum property requirements. Now, a VA renovation loan greatly expands the buying opportunities. Maybe the buyer’s agent finds the home in the perfect neighborhood, preferred school district, and even a discounted price because of the condition. Being a Veteran armed with a no money down loan that will also include funds for improvements is quite the home buying weapon!
How Does a VA Renovation Loan Work on a Purchase?
As a VA buyer considering the purchase of a home in need of renovations, it is key to have a basic understanding of the process. Keep in mind that it does not always go exactly this way. Often, the buyer does not expect a renovation loan until the home inspection or appraisal uncovers issues. This situation could cause a buyer to start searching for an experienced renovation lender in the middle of a purchase.
- VA home improvement loan pre-approval
- Provide documentation for underwriting
- Locate desired home
- Execute purchase contract
- Obtain a home improvement contract with a licensed contractor
- Include home consultant when renovations exceed $35,000
- Order VA appraisal requesting “as completed” value
- Submit appraisal & remaining file to underwriting
- Final approval
- Closing – Click here for a checklist
- Record deed and mortgage in buyers’ name(s)
- Buyers move in (depending on the amount of work needed)
- Contractor completes all work
- Appraiser completes reinspection to verify complete work
- Final payment made to the contractor
One aspect to notice from the process outlined in the steps listed above is that the buyer owns the property and moves in before the work starts. Only renovation loans allow improvements after closing.
Now that we have explained how the basic VA renovation loan process works let’s back up. The first step is to contact OVM Financial. Whether using a traditional VA loan or a VA renovation loan to purchase your new home, OVM Financial can expertly handle either scenario. Additionally, OVM Financial offers up-front underwriting which helps a buyer shop confidently.
Download Our Renovation Comparison Chart
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