VA Renovation Loan
Every year, home loans from the U.S. Department of Veterans Affairs enable thousands of veterans, service members, and their families to achieve their homeownership goals, including undertaking renovations. VA home loans offer significant advantages—they often have no down payment, require no private mortgage insurance, and may have lower interest rates than conventional home loans.
A VA renovation loan is a specific type of VA home loan that rolls the cost of home repairs into a VA mortgage or cash-out refinance. This allows veterans to both purchase a home and fund renovations or repairs with a single loan.
How Does a VA Renovation Loan Work?
VA renovation loans work by combining the purchase price of the home with the estimated costs for repairs or improvements. The “as-completed” value of the home, which is determined by the appraised value after renovations, sets the maximum loan amount a veteran can borrow.
Veterans can use VA renovation loans to purchase a fixer-upper requiring repairs or renovate their existing home, all while incorporating the cost of improvements into their mortgage. This type of loan works best for borrowers who don’t have an original VA mortgage they want to retain and only want one loan. Once repairs are complete, the home must pass a VA appraisal and inspection.
VA Renovation Loan vs. Traditional VA Home Loan
A VA renovation loan is specifically used for home repairs or improvements, while traditional VA loans are primarily for home purchases or refinancing. This option can be ideal for veterans and their families who are purchasing a fixer-upper home or making necessary home improvements to meet the VA’s Minimum Property Requirements, or MPRs.
The renovation loan can be considered a supplemental loan in some refinancing cases. However, to use the loan for refinancing, you must have owned the home for at least one year.
VA renovation loans provide borrowers with greater flexibility when shopping for a fixer-upper, since they won’t be limited to homes that already meet VA MPRs. Borrowers can use a renovation loan to bring the home up to standards for a VA-backed mortgage. However, you must use VA-approved contractors to make repairs, and the work must enhance the safety and functionality of the home, not just improve its appearance cosmetically.
VA Renovation Loan Eligibility Requirements
There are several general eligibility requirements for a VA renovation loan, including service requirements and a Certificate of Eligibility, or COE. Additional requirements include the following:
- The home must be your primary residence.
- The renovations must improve the home’s safety, livability, and functionality.
- Contractors must meet state and local licensing requirements.
- All work must be completed within 120 days from the closing date.
- The property must undergo a VA appraisal and meet VA inspection standards.
- You must meet your lender’s credit score requirement, typically around 620. The VA itself does not set a credit score requirement.
Types of Renovations Allowed with a VA Renovation Loan
As part of the VA’s home loan program, qualified borrowers can use a loan to make renovations that improve the safety or livability of their home.
Some of the upgrades or repairs that can be financed with a VA Renovation Loan include:
- New windows, doors, or siding
- Roof repairs or replacement
- Installing new HVAC systems, water heaters, or plumbing
- Weatherproofing and improving insulation
- Mold and lead paint remediation
- Accessibility improvements
- Electrical system updates
Several types of home improvement projects cannot be financed with a VA renovation loan, such as the following:
- Major structural changes, like adding a new story or room to your home
- Luxury upgrades, like installing a swimming pool or a detached garage
- Projects requiring a structural engineering report
How to Apply for a VA Renovation Loan
When applying for a VA renovation loan, borrowers must follow several steps to qualify, find a lender, and obtain an estimate for renovation costs. The VA renovation loan process typically involves the following steps:
- Pre-qualification and getting a Certificate of Eligibility
- Finding a lender who offers VA renovation loans
- Getting contractor estimates and appraisals
- Completing the application and approval process
The timeframe for approval and closing on a VA Renovation Loan varies based on the scope of the repairs, among other factors. While the average time to close on a VA loan is approximately 55 days, necessary repairs can add up to an additional 120 days.
Alternative Financing Options for Home Improvements
If a VA Renovation Loan isn’t an option for your family, the following financing options are available to veterans who need funding for home improvements:
- VA Energy Efficient Mortgage: A VA Energy Efficient Mortgage, or EEM, provides money for veterans to make energy-efficient upgrades. These loans can finance the cost of energy efficiency improvements, such as thermal windows, insulation, and solar heating and cooling systems. However, EEM loans are typically capped at $6,000.
- VA Cash-Out Refinance: A VA Cash-Out Refinance allows you to tap into your home’s equity for home improvements. It can also be used to refinance a conventional or FHA loan into a VA-backed mortgage. These loans are best used when interest rates have decreased since you obtained your current mortgage.
- Specially Adapted Housing Grants: Disability housing grants, such as Special Home Adaptation Grants or Specially Adapted Housing Grants, enable veterans to make necessary home modifications to accommodate their disabilities.
Non-VA Home Improvement Loan Options
There are also home improvement loan options available outside of the VA loan program. If your home is worth more than you owe on your primary mortgage, you can borrow against some of the difference with a home equity loan or line of credit, or HELOC. Additionally, an FHA 203(k) loan allows you to buy or refinance a home and roll the renovation costs into the mortgage, similar to a VA renovation loan. Conventional home renovation loans also allow this, but may have stricter credit score requirements.
Ready to Renovate Your Home?
VA Renovation Loans enable veterans, service members, and their families to incorporate the cost of home repairs into their VA mortgage or cash-out refinance, allowing them to purchase a home and fund renovations with a single loan. These loans are ideal for veterans seeking to buy a home and make necessary repairs to ensure the home’s safety and livability.
To learn more about your options when buying a fixer-upper or renovating your home as a veteran, contact your VA-approved lender or financial advisor.
