Most veterans who have gotten a VA home loan don’t understand that a VA loan can also be used to make improvements to the home. These improvements can be additions to make the home more livable or accessible to those who have service-based injuries.
Getting through the Veteran’s Administration red tape isn’t something that you should take lightly–but, don’t let that keep you from getting the things you need to make your home more accessible or more comfortable to live in. Read on and learn what you need to know about using your VA loans for home renovations.
How Does a VA Renovation Loan Work?
VA Renovation loans work like a regular loan but with an amount for upgrades. These two amounts are then combined into your regular mortgage payment. The upgrades must meet specific criteria and can’t be simply cosmetic.
Some people think that a renovation loan is only for making upgrades or additions to the veteran’s home. That isn’t necessarily true. There is a set of rules that every builder or contractor must complete to be able to do the work on the home.
Some criteria that must be met for a contractor to work on your home are:
- Certification – When it comes time to choose a contractor, you have to pick someone who is VA certified. This is a certification that builders and contractors acquire to work with federally subsidized loans. It allows them to make upgrades, and the VA knows they can trust that the work is up to their standards.
- Money Limitation – There is a $100,000 limit on the upgrades. The home that you intend to buy must not need more than 100k in repairs. If you are purchasing a much larger house, it could be a problem, but you should be fine if you just need a home with added ramps or lifts for stairways.
- Particular Upgrades – You aren’t going to be able to put a pool in as part of the upgrades in your new home. They must improve the living conditions of the veteran or allow them to be more independent around the residence.
- Primary Residence – The Renovation loan must be used only for a primary residence. If you are looking to spruce up the vacation rental, you will not be able to get the financing needed if you are trying for the loan. They must be used to outfit your primary residence only.
- Loan Options – You must choose a specific year length loan when shopping. The standard 10 to 30-year options are available, but you can also select an option that allows you to break your loan down into five-year increments starting at the 15-year mark.
Who is Eligible to Receive a VA Renovation Loan?
Veterans with a good credit score and other benchmarks are in line to get the VA renovation loan. However, they must work with an approved VA loan company and know the total cost of repairs and labor before the loan is processed.
Eligibility for the VA Renovation loan is going to resemble the process for the standard loan closely. They do this in case a home has more damage than intended; they can transition from the traditional loan into the renovation loan, which can fix the shortcoming of the house to be purchased.
The folks eligible for the VA Home Renovation Loan are:
- Veterans – It is a no-brainer that the VA services the fine men and women who have served in the Armed Forces. The vet should have an honorable discharge or a medical discharge, depending on the date of DD214.
- Spouses – If you are the spouse of a veteran, living or deceased, you can apply for the VA Renovation loan. They must have the same requirements as a living veteran and should not use the loan for a vacation rental.
The homes that are eligible for a VA Home Renovation Loan must have:
- Limited Value – The upgrades you add to your home could increase the value exponentially. You will only be able to get a loan for what it is worth on that day. Meaning you can’t buy a dump house and borrow money against it.
- Contractors Certification – Each person that works on the home you are buying must be certified by the Veteran’s Administration. That means they know which guidelines should be followed during the build to ensure that the VA is not liable for any problems or accidents.
Outside of the usual eligibility hoops to jump through, there are also things, like location, that could keep buyers from getting the loan. If you live outside the continental US, you could be in for a rude awakening.
Some things that disqualify you for the VA Renovation loan are:
- Living in Alaska or Hawai’i – The VA likes to keep all their properties in areas inside the continental United States. That means if you want to live the off-grid life in Alaska or be in a beach house in Hawai’i, you will have to choose another location to make the dream become a reality.
- Credit Score – You should have at least a 640-mortgage score before jumping into the process. If you don’t, there isn’t much that can be done. The credit score and your DD214 are going to be the most important parts of this entire process.
What are the Benefits of Using a VA Renovation Loan?
You or your spouse’s sacrifices while serving this great country are not going to be ignored. The VA makes sure that veterans and their spouses get the full weight of their benefits, which translates to the purchase and the coming renovations and the contractors you use.
Are VA Interest Rates Some of the Lowest Allowed in the Market?
The VA is known for getting the best rates on home loans. For example, by using the Renovation loan, you get the low rate for the home as well as the money, up to $100k, at the lowest rate the market will allow. This means throughout your loan; you save thousands.
Often the low-interest rate is what drives the families towards the VA loan. It provides a family an extra amount of income that can be used towards something else important, like home insurance. The low-interest-rate should be looked at as money saved over the life of the loan and not as a way to have a smaller house payment.
The No Money Down Option Helps Thousands of Families Each Year
The VA Renovation loan can come with a no money down option that no one else offers. The lack of money makes the loan unique and makes the VA the only company that will guarantee 100% of your loan.
For the vet to receive the no money down portion of the loan, they must have an appropriate credit score. The down payment doesn’t just appear; it is stretched out over the life of the loan and could add a few dollars every month to your mortgage.
Is Mortgage Insurance Required When Choosing the VA Renovation Loan?
Using the VA Renovation loan saves you from having to purchase insurance. Other lenders could require you to have an additional insurance amount added to the mortgage that protects the banks from default. Loans secured by veterans are insured against default by the VA.
Mortgage insurance can add thousands of dollars onto a home loan. Of course, not having to pay the insurance is a way to save money, but you should look at throwing that extra money into getting some top-tier home insurance.
With the VA, A Single Loan is All That is Needed
Going the usual loan route is hard when you need upgrades or repairs. You must get a loan for the home and an additional loan for the repairs that you are planning. Having two loans means you have to make more payments which could disrupt your finances.
Having the loan compounded into one payment is going to make keeping track of it much easier. However, while some people have a knack for remembering when bills are due, others could see the extra payment, though the money is the same, as a speed bump that could send their financials spiraling off a cliff.
What are the Cons of Using the VA Renovation Loan?
Everything with the loans isn’t going to be easy or comfortable. There are shortcomings to a Renovation loan that can be a headache. You should understand before the process starts that buying a home for renovation is the beginning of a stressful process. Keep your mind on the positive aspects but understand that challenges are going to arise.
VA Renovation Loan Lenders Can Be Hard to Find
The amount of teams working in the mortgage industry is enough to make your head spin. A large part of these can be eliminated by not offering VA loans, and the other part can be disqualified for providing the home loan but not the VA for Renovation loan. Luckily, Active Duty Passive Income’s in-house lending team can help with VA Renovation Loans – you can get connected by filling out this inquiry form.
The loan requires a ton of paperwork and someone who has navigated the bureaucratic maze that is the Veteran’s Administration. However, companies do work specifically with vets, and if you take your time and do your research, you should come away with a company that has just the loan you needed for the home of your dreams.
Certain Upgrades are the Only Types Allowed with the VA Renovation Loan
It could be a downer for some that you can’t add an extra room to store your prized collection of military memorabilia. The loans can only be used for upgrades to improve the livability and safety of the Veteran’s home. If you sustain service-connected disabilities, you should ensure that there are a few things that make your home more accessible and comfortable.
There are also restrictions against changes that must be followed. For example, you cannot use the loan to make any structural changes inside the home. That means that there is little chance of getting broken foundations or unsteady footings repaired with the loan.
There Could be Limits on the Amount You are Allowed to Repair
One of the most significant downsides of the VA Renovation loan is that you could not end up with all the money you need to repair the home. A ceiling is placed on the loans to keep the people from getting into money pits that could drain all their money and put them in a worse situation than when they started.
The limits could also not meet the estimates of your contractors and derail the home buying process completely. If the estimates are not right for the house, it is best just to move on and not dwell. The process is full of challenges, and these limits make the market for your home a tiny section in what could be an already stressed market.
Home Repairs Don’t Affect the Amount of the Loan.
One of the things that helps young airmen, soldiers, sailors, and marines build lifelong equity is using the VA to buy a home. However, before you travel down this path, you should know that using the VA Renovation loan only allows you to repair the house and not borrow towards what the home will be worth.
Some people want the loan to cover this amount to allow them to move up to a larger or more appropriate home. This allows for more than enough wealth building and gives some wounded veterans a chance to grow their wealth with their families.
How to Apply for a VA Renovation Home Loan?
The red tape surrounding the VA is of epic size and reputation. Getting a home loan with them is going to take time, and you should have all your paperwork and everything they will need ready before you contact a loan officer.
You Need a Certificate of Eligibility From the Veteran’s Administration
The first thing you need is your COE from the VA. By going to the webpage, you can enter all of your information and should have the COE by the end of the session. All the information required must be filled out correctly, and if you don’t get the result you want, you could have to contact the VA by phone or in person to clear things up.
The website is excellent for keeping your information private and accessible to you. They fill out the COE for you and leave all the spaces blank so that your mortgage company can get it filled out correctly and get you approved for your home.
Find a Lender Who Works with VA Home Renovation Loans
Once all your military paperwork is in order, you can begin to search for a brokerage company to fulfill your loan request. Remember that this part could be tricky, so you want to use someone who knows how to cut through the bureaucracy and get the job done. There are tons of companies, but only a few that specialize in VA and VA Renovation loans – such as ADPI’s in-house lending team.
Shop Contractors for the Price of the Upgrades
Once you have gotten with a lender you can begin to test the waters with contractors. You must have someone who is certified to renovate for the VA, and any reputable contractor should have their credentials readily available when coming to give estimates on a job. The contractor should also have a knowledge of what is allowed to be built with the Renovation loan.
Contractors can be a busy crowd. Knowing what you want from them and communicating it is crucial to making the project work. You must also know that there are going to be hiccups on the job. Working and having this open line of communication will ease the fears of all involved.
Have a VA Certified Appraisal Done by a Certified Professional
You should know that the VA wants to use people who are familiar with their process. This means that they want people who have gone the extra mile to become acquainted with them and spent money to work within their boundaries.
Take the time to inspect their credentials and go with someone who has a steady track record of completing jobs on time and on budget. Nothing could be worse than finding out the loan has problems because the contractor came in too far over budget.
Attend the Closing of the VA Loan
One of the most essential parts of the process is going to the closing. At the end of your long paper trail, you will get together with your broker and real estate agent. There will be a lot of signed papers, and you will leave with the keys to your new home. ,
Closings at different companies can be as quiet as a wake or as lit as a night on the town. No matter the style, you should ensure that all the i’s are dotted and the t’s are crossed before leaving the office. However, do take the time to kick your heels up and celebrate the end of the paper maze you just navigated.
The Upgrades for the Home are Installed and Finished
Once all the paperwork is done, the manual labor can begin on the house. This is a time for you to keep abreast of all the work going on and how much longer things will take. Pay attention to the project’s bottom line and work as much as possible to keep the price below the amount on the loan.
The Final Inspection is the Last Step in the VA Renovation Loan Process
Once you are done with the work, you can bring in an appraiser to ensure that all the upgrades have been performed correctly and the home is up to the high standard held by the Veterans Administration. They keep the standard high so that work is correct and the vet can rest assured that there are no problems.
It might not seem like it, but this is a significant time for veterans and their families. Once the inspection is completed, the family is ready to begin moving, which is something that will be remembered around the dinner table for generations to come. Memories like these are what make the VA Renovation loan such a boon for vets.
What are the Types of VA Renovation Loans
It would be easy to think that the VA Renovation Loan only comes in the standard form. However, the great thing about it is that it comes in four different versions, each to fit a particular housing situation. These versions make it easier for families with extenuating circumstances to get homes with the things they need.
The different types of the VA Renovation Loan are:
- Cash-Out Refinance
- Standard Renovation Loan
- Supplemental Loan
- Energy Efficiency Loan
The great thing about the VA Renovation loan is the fact that it can come in at any point of the veteran’s life. Those who are recently separated can use the loan for an affordable fixer-upper home and the older vet can have ramps and rails installed in their home to give them back some independence.
Cash-Out Refinance is a Great Way to Make Repairs on an Older Home
The cash-out loan will only work for those who owe less on their home than the mortgage is worth. It works as an additional loan. You can get the money you want for anything. Not just renovations, which could be needed.
A cash-out is suitable for those who add rooms or things that the VA could consider unnecessary with the Renovation loan. It essentially adds the money borrowed back into the mortgage of the home.
The Standard Renovation Loan is Great and Helps Thousands of Veterans
The VA Renovation loan is one of those great benefits that can change the lives of the vet and the lives of their families. Building generational growth that spans decades means that you must own a home and keep up the payments. This improves your credit and allows you to get credit cards and other things like new cars.
The standard is cut and dried. Once the home is appraised and the contractor gives a quote, you have a single loan that is cut. That means that you don’t end up with much, if any, money in hand after the process. However, you do end up with the upgrades and other things you need to make your home livable and safe.
A Supplemental Loan is a Hybrid of Different Renovation Loans
The Supplemental is a bit different from the other types of loans in that it has bits and pieces of all the other kinds of loans. With the Supplemental, you can add money onto your home loan or have it set up like a second mortgage.
This type of loan is great for smaller bits of renovation, under $4,000, because there aren’t as many hoops to jump through or red tape to cut. If your amount is over the 4k threshold, you will be in for the same road as the rest of the loans. Again, this loan can only be used for things that make the home more livable and safer.
An Energy Efficiency Loan Allows for Energy-Related Upgrades
One of the newer loans is Energy Efficiency. It allows the veteran to make upgrades to the home that make the house cool or heat better. This loan is great for those people who have used loans to live off-grid or become self-sufficient by adding solar panels.
If you are making upgrades on the lower end of the spectrum, the government will assume that your power savings will pay off the loan. However, if you intend to go whole-hog on the home you can expect the loan to work like the supplemental program. It will provide things, like new windows, but shy away from large solar batteries.
A VA Renovation Loan is a great way for a veteran’s family to buy a fixer-upper home and still get the fabulous rates and benefits involved with the standard Veterans Administration loan. In addition, this loan makes it easier for those veterans who sustained life-altering injuries to find a home and add the upgrades they need to be safer and have more independence.
The process of getting a VA Renovation loan is going to be fraught with red tape. When choosing contractors and lenders, be sure to pick someone who has familiarity with the process and can deliver a home to you with few problems and even fewer headaches.