The “perfect” house can be hard to find.
Sometimes a home is almost perfect; it has the right size, sits in a high-quality neighborhood, and provides all the amenities you desire from your home. It seems like the ideal place.
But it needs a new roof. Or the flooring is worn thin. Or the windows are drafty. Or all of those and more. These projects, of course, cost money, and this additional cash may not be waiting for you in a fully-stocked bank account.
If you are using a VA loan, one of the main advantages is that you can secure financing with 0% down. This significantly reduces the upfront costs of purchasing a property. But if you have to pay for numerous repairs just to make the home livable, suddenly the initial cost of owning a home skyrockets.
Fortunately, there are options, including VA renovation loans. These loans not only provide financing for your purchase, they also supply the necessary funds for making a variety of repairs, upgrades, and updates.
Suddenly that almost-perfect house could, within a short time, be a perfect home!
VA Renovation Loans Bring Low Costs to Your Purchase
What is a VA Renovation Loan?
A VA renovation loan functions much like an FHA 203(k) loan, but comes with many of the same benefits as traditional VA loans. They offer financing with no downpayment for eligible borrowers, and come with no mortgage insurance, further reducing the cost of borrowing.
Essentially, with this loan both the cost of the purchase and the cost of expected repairs are rolled into one loan.
Like all loans supported by a government organization, there is a specific limit to how much you can finance for a VA renovation loan. The total amount you could qualify for is dependent on the estimated value of the property once the repairs are completed. This is important, as the completed value will be higher than the current value (before repairs), which means you’ll have more potential financing.
To determine the specific value, you need itemized quotes from contractors. An appraiser will review this information to determine the completed value.
Requirements for Using a VA Renovation Loan
To use these loans, you will have to meet a variety of requirements, starting with VA benefits eligibility. Assuming you are an eligible service member or veteran, you can then look at requirements that are specific to VA renovation loan.
Basic requirements apply. For example, the home will have to be your primary residence for at least a certain period. This means that VA renovation loans cannot be used for investment properties. However, you don’t have to live in the property right away, as there is a grace period for making repairs. Once complete, however, the home needs to be your primary residence.
Renovations being funded and completed through a VA renovation loan need to improve the livability, usefulness, or overall safety of the home, and they can’t be just for aesthetic value. Many repairs will, of course, improve both the livability or safety and the visual appeal of the home. For example, a roof repair is necessary and makes the home look better; it’s eligible. But unneeded painting may not be. These loans, however, are not severely restrictive, and you’ll find that most projects are eligible, as most can be justified as improvements to livability.
Eligible projects will include:
- New windows or window repair
- New HVAC systems
- New insulation
- Mold mitigation
- New flooring
- Electrical upgrades
- Plumbing improvements
- Enhancing accessibility
So what projects are ineligible? The list is fairly short, but ineligible projects basically include anything that only adds aesthetics or unnecessary luxuries to the property. A swimming pool or hot tub installation won’t be eligible, and adding a fire pit will not be approved. Replacing the vinyl siding could be eligible if the existing siding is worn and broken, but simply replacing it because you don’t like the color won’ be an option.
The VA also has a restriction on major projects that require structural work. These projects are extensive, detailed, costly, and involve numerous safety issues, so the VA has decided to make them ineligible for VA renovation loans.
Regardless of which projects need to be completed, they should all be finished within 120 days of closing the loan. Most projects will be easy to complete within this timeframe, but certain projects, such as major kitchen remodeling, could take longer. It’s important that contractors are lined up and ready to work as soon as possible, and you’ll likely want to contact builders and remodeling professionals before closing the loan.
VA Renovation Loan vs Traditional VA Loan: What are the Differences?
To be honest, there are not many differences between one of these loans and the other; the only real difference being that VA renovation loans are for homes that need improvements. A VA loan, on the other hand, is simply for buying a property. Other than that difference, many of the details are the same; they both offer zero-down financing, generous qualification for eligible veterans, and mortgage payments with no mortgage insurance.
VA Renovation Loans: Energy Efficiency
If you want to buy a home and make specific energy-efficiency upgrades, a VA loan can be a good option. This loan program has a clause that allows the loan limit to be raised specifically to fund energy-efficiency improvements, which can include new heating and cooling systems, windows, doors, appliances, insulation and more. It can even be used to install solar panels.
This is a high-quality option for any one that wants to improve the energy use of their home, and could be a good choice if you are looking to purchase an older home, as these properties tend to be less energy efficient.
Proud to Help with Your Home Purchase!
If you are interested in using a VA renovation loan, contact our team today. We understand how to find the right financing for your specific needs, and we can even use the FastTrack system to quickly process your application.
From VA loans to investment loans, you’ll find everything you need with our knowledgable staff!