As a Loan Officer who specializes in all types of renovation mortgages I am very happy to write about another one. This is a VA Renovation (Veterans Administration) mortgage that can be used to purchase or refinance a home and include funds to remodel or repair in the same loan.
This is a loan for Veterans that is guaranteed by the Veterans Administration (VA). The difference between the VA Renovation loan and a regular VA loan is this one will allow additional dollars in the same loan to be used to update, remodel, repair or retrofit the home. As with most VA purchase loans there is no down payment required for eligible veterans or Active Duty Military. This means 100% financing is possible which will include any extra dollars needed to remodel or repair the property plus the dollars required for a purchase.
The VA Renovation mortgage will use the home’s “as completed” value for loan approval. That is the value the home will attain once all renovation is fully completed in the future. The limit on the dollars added to the loan for rehab is based on the “as completed” value and cannot exceed 35% of a homes “as completed” or future value with improvements factored into the value.
What makes this loan so useful is the fact the “as completed “ or future value, after all rehab is completed, will be projected up front. This is done using a Contractors written itemization of all renovation tasks to be done showing labor and material costs. That written document allows a VA Appraiser to give the future or “as completed” value of the home on a VA appraisal report, then used to approve the loan. All rehab work is done after the loan is approved and a Veteran closes on the purchase or refinance of the home.
Here is an example of the VA Renovation loan being used to purchase & rehab a home :
- Veteran purchases a single family home, townhouse or VA approved condo selling for $200,000
- The home can be outdated, in need of repairs or even a damaged foreclosure property requiring $50,000 of renovation
- Veteran’s written Contractor’s proposal shows all that is to be done for $50,000 such as a new kitchen, updated bathrooms, new flooring, painting, HVAC, lighting, etc.
- The written Contractor proposal is sent to the VA Appraiser who visits the property and determines it will be worth $300,000 when all the renovation is completed after Veteran buyer closes on the house
- The VA renovation loan limits the renovation dollars portion of the loan to 35% of the “as completed” value, or 35% of $300,000 in this example which is $105,000 – well within the 35% limit given the renovation portion is $50,000 (it can be up to $105,000 if need be in this example given the $300,000 future value)
- Veteran buyer is eligible for 100% financing which in this example is $200,000 to purchase and the added $50,000 to rehab for a total loan size of $250,000
This last point is very important- An eligible Veteran can borrow all the money needed to both purchase a home and the funds to remodel it all in one loan, one payment, same fixed interest rate and have up to 30 years to repay it.
I do not know of any other rehab loan that works that way for Veterans. I am very excited to present this VA renovation loan example. In today’s market where available housing inventory can be low in many areas this gives Veterans another way to find a home and make it work for them in most any location.
Another aspect of the VA renovation loan is the limits on what can be done to a property and all rehab work should be completed within 180 days. The VA intends for the loan to be used to update and remodel a home or perhaps retrofit a home for a disabled Veteran. The purpose is not to completely rebuild a home or add on additional square footage or major structural changes. The reason why is a major rebuild would likely take more than the 180 days given for completion and exceed the 35% of future value dollar limit on rehab funds. There are other rehab loans for larger projects such as Fannie Mae HomeStyle or FHA 203K. Below are some examples of what remodeling can be done with the VA renovation loan:
- New roof, gutters or downspouts
- Install new windows, doors, siding
- Lead paint abatement, mold remediation or termite treatment & repairs
- Replace all electric, plumbing, HVAC or other mechanical systems
- Repairing or replacing wood flooring, tile, carpeting, etc.
- Installing or repairing fences, walkways or driveways
- Foundation or masonry repairs
- Weatherization and insulation improvements
- Energy efficient upgrades
- Installation of new kitchen and bathrooms
- New appliances, HVAC, hot water systems, etc.
- Repair or replacement of well & septic
- Repair or removing an in-ground swimming pool
I also want to list some examples of repairs that are not allowed with the VA renovation loan per VA guidelines:
- No major structural work such as building a new addition or adding another floor to a home
- No new swimming pool installations where one did not exist
- No Landscaping or site improvements
- No Alterations for commercial use
- No detached garage construction
- No Improvements that do not conform to the surrounding neighborhood
In summary the VA Renovation loan is a great option for an eligible Veteran to purchase a home and include funds to make it safe, secure, sanitary and fully habitable. This is all with one VA guaranteed mortgage, one payment, fixed interest rate and up to 30 years to repay. This may be a better option than to take a second loan or home equity line of credit that may be at a higher or variable rate to finance a renovation.
I hope this post has been helpful and encouraging to those that may have thought a Renovation project was too complex or beyond their ability to manage. My intent is always to inform, educate, and generate discussion. Please call me or email me directly or visit my website for more information on renovation loans. I welcome your comments and questions!