Mortgage

What’s a VA Residence Enchancment Mortgage? And the place am i able to get one?

VA Home Improvement Loans: Buy and Repair a Home with a Loan

If you're a veteran or service member looking to purchase a Fixer upper, you might be in luck.

This is because if you are eligible you can get a VA home renovation loan that will allow you to buy and renovate a home with no loss of money and at a great interest rate.

But finding a VA rehab lender could be difficult. And qualifying could be more difficult than expected.

Take a close look at a VA home renovation loan and learn how it works. If this option is not available to you, look for alternatives.

Review Your Home Improvement Loan Options (Nov 16, 2020)

In this article (jump to …)

What is a VA Home Improvement Loan?

The VA Home Renovation Loan Program allows you to buy and repair a home in need of repair – all with a single mortgage loan.

Like all VA mortgages, the VA renovation or rehab loan offers extra low interest rates and the ability to buy a home with no down payment.

However, this is not just a home loan. Current homeowners can use the VA rehab loan to refinance an existing property and plan for a repair.

To be eligible for VA funding, you or your spouse must be a veteran or active duty member.

Check Your VA Loan Eligibility (Nov 16, 2020)

Benefits of the VA Home Renovation Loan

"While traditional VA home loans just fund the purchase or general refinancing of a home, a VA home renovation loan is more broadly applicable," said Wayne Brown, former United States Air Force captain and director of business development for Pensioned American Retirement Company.

"That's because part of the loan includes the cost of renovating the property," he explains.

“VA renovation loans can be used for refinancing purposes. In this case, however, they essentially serve as an additional loan to repair your property in addition to conventional VA refinancing. "

No down payment or mortgage insurance is required. And eligible borrowers can get a very low interest rate.

John Gluch, broker and founder of the Gluch Group, says the benefits of a VA home renovation loan are many.

For one, no down payment or mortgage insurance is required. And eligible borrowers can get a very low mortgage rate.

"Also, the borrower only has to worry about a single VA loan for their property instead of a purchase mortgage loan and a separate rehab loan," notes Gluch.

"This allows for convenient monthly payment and can be easier for budgeting and forecasting."

How the VA Home Renovation Loan Works

A VA renovation loan is a single loan that combines the purchase price of a property with the associated repair costs.

Borrowers can finance up to the “closed” home value, which is the market value of the home after the improvement.

“To find out what the value of 'completed' is, you must first get detailed suggestions for improvement from a contractor,” explains Brown.

“Then a VA appraiser will review the offer and decide on the future value of your house. The loan value is always the lower of the total acquisition costs or the "completed" value assessed by the VA expert. "

If you are using a VA rehab loan, the home renovations must be completed within 120 days of the loan closing.

When refinancing, you must have lived in the house for at least 12 months before starting repairs.

VA rehab loan eligibility

To qualify for a VA rehab loan, you need to meet several criteria.

First, you will need a valid Certificate of Eligibility, which shows that you are eligible for a Department of Veterans Affairs supported home loan.

As Brown explains, eligibility usually means that you meet one of the following criteria:

Served active duty for at least 90 consecutive days during the war. Served in active service for at least 181 days of service in peacetime. Served at least six years of service in the National Guard. Or spouse of a service member who died of a service-related disability or in the line of duty

In addition to your VA loan eligibility, there are certain requirements for the home buyer and property.

Bruce Ailion, a real estate investor, attorney, and broker explains:

The house must be used as a main residence
You cannot borrow more than the home's repaired value
All contractors you choose must be approved by the VA
And you usually need a credit score of 660 or better

Lenders will also want to see stable incomes and tolerable debt.

Not all repairs are covered

Additionally, it should be noted that the type of repairs you can do with a VA home renovation loan is limited.

“You can improve the existing structure,” says Ailion, “by adding, for example, a new roof, upgrading or replacing the plumbing or electrical installations, installing new carpets, improving accessibility and improving the house in terms of health, safety and quality of life. ”

However, you are not allowed to completely gutt the house and renovate it from top to bottom.

VA renovation loans limit repair costs to $ 50,000 and only certain types of renovations are allowed.

Nor can you make purely aesthetic improvements, e.g. B. Buy fancy new countertops for the kitchen or install a home theater.

“You can't add an add-on, install a swimming pool, or improve the landscaping with a VA renovation loan,” says Ailion.

In addition, your credit-to-value ratio must not exceed 90 percent. And you must live in the continental United States so that Hawaiians and Alaskans are not eligible.

Finally, the maximum allowed repair limit is $ 50,000. If your home renovations are likely to exceed this limit, then you will need to look for a different type of home loan.

Review Your Home Improvement Loan Options (Nov 16, 2020)

Good candidates for a VA home renovation loan

You could be a good candidate for a VA home renovation loan if:

You are a service member or a veteran. You plan to stay in your home long term. Your home requires structural or security improvements that cost less than $ 50,000

However, if your plan is to quickly turn the house over or rent it out, the VA rehab loan is not for you.

"Borrowers cannot use a VA home renovation loan to fix and flip a home or rent a rental property because funds cannot be used for short-term investment opportunities," Brown warns.

Grant Moon, Major in the U.S. Army, CEO of Home Captain, says this loan option is ideal for those looking to manage a project.

According to Moon, the VA rehab loan is "a good choice for someone who is budget conscious yet ready to get the work done on a property with potential."

Note, however, that you are unlikely to be allowed to do the work yourself. Repairs must be performed by a licensed, bonded contractor who also has a VA Builder ID number.

VA renovation lender

One of the drawbacks of a VA rehab loan is that the U.S. Department of Veterans does not guarantee the cost of repairs until all the work is done.

The lender has been hooked up to $ 50,000 in renovation costs for weeks, maybe months. If the borrower defaults during the rehab process, the lender pays the bill.

“As a result, some lenders are unwilling to take this risk. Hence, it can be difficult to find a private lender that offers VA home renovation loans. For example, even Veterans United doesn't offer VA home renovation loans, ”says Brown.

He adds that VA Nationwide Home Loans, OVM Financial, and Homebridge Financial are among the VA lenders offering home renovation loans.

“There are usually regional options, but you want to do your due diligence in the review process. It's not like getting a loan from J. P. Morgan Chase or any other major lender, ”says Gluch.

"For a referral, contact your unit or team ombudsmen for more information, as they know the local market near you better than anyone."

Alternatives to a VA rehab loan

A VA home renovation loan isn't your only choice as a way to buy a fixer upper or upgrade your current home.

If you can't find a lender, don't qualify for this loan, or just want to look for alternatives, consider the following options:

VA Energy Efficient Loan – Can be used to fund up to $ 6,000 worth of improvements and repairs related to green initiatives or greater energy efficiency
FHA 203 (k) loan – Combines the purchase price of a home and the cost of renovations, just like a VA renovation loan. The FHA 203k rehab loan is a much more common program. However, it does include upfront and annual mortgage insurance, which can be expensive
VA Disbursement Refinancing Loans – Allows you to use your equity to pay for home improvement
Fannie Mae HomeStyle Home Improvement Loan – Like the VA Rehab Loan and the FHA 203k Rehab Loan, the Fannie Mae HomeStyle Renovation Loan includes the purchase price of home and repairs within a mortgage. You must have a credit score of 620 or higher and a down payment of at least 3 percent to qualify
Home equity loan or Home Equity Line of Credit (HELOC) – If you already own your home and want to make improvements, one of these second mortgage options might be the money you are looking for
Review Your Home Improvement Loan Options (Nov 16, 2020)

Things to Consider Before Buying a Fixer Upper

Think carefully before you make an important financing decision.

“Think about how this decision fits into your budget. Renovating a home and pursuing a property that needs work is not only a financial risk, it can also be a lot of stress and headache, "warns Brown.

"That's because coordinating projects and contractors can take a lot of time, attention, and energy."

"Make sure you are in a strong place mentally, financially, and emotionally before embarking on a major renovation project," suggests Brown.

“Renovating a property always costs more money than you think. So, go into the process well informed and with reasonable expectations. “- Grant Moon, Major, US Army and CEO of Home Captain

Also, think twice if you've never done major rehab before.

"If you have no experience renovating real estate, it's easy to go over your head. And in general, renovating a property always costs more money than you think. So go into the process well informed and with reasonable expectations." , recommends Moon.

However, if you qualify and find a worthy property with great potential, pursuing a VA home renovation loan can be a smart move.

“This can be a great opportunity to build wealth. An older home can often be bought at a discount. And a home that is properly furnished can create a comfortable cushion of equity, ”adds Ailion.

Find the best home renovation loan for you

A VA home renovation loan can be a great way to finance home renovations at a low interest rate.

On the other hand, VA home renovation lenders can be very difficult to find. So getting one may not be an option.

Fortunately, there are many other types of rehabilitation and home improvement loans in the market. So if you can't find a VA rehab loan, you probably have other good options.

Check your new plan (November 16, 2020)

Related Articles