It’s not always easy to find the perfect home. Today’s home buyers are encountering lack of inventory in many parts of the country and a great deal of competition with fellow house hunters for desirable properties. With homes moving quickly and property values on the rise, sellers are likely disinclined to make major concessions or offer to make repairs or updates prior to closing.
For VA buyers the challenges are often even greater. Members of the military may move frequently, and perhaps be transferred a long distance away, making it tough to spend a great deal of time searching for a new home in advance of the relocation.
Thankfully the VA Renovation Loan may provide a solution.
The program offers the opportunity to finance both the purchase and renovation of a home, with zero down payment. It’s even possible to borrow more than the full value of the home, as the work done to the property will also add to its value.
This means if would-be buyers find a house in the right location that is dated, or one that they love the look of the exterior but can’t stand the flooring or wall coverings inside, they can tap into the funds available through the VA renovation mortgage to make an ok home a dream home.
How It Works
When applying for the renovation mortgage the home buyers must work with a general contractor who is registered with the VA, and carries sufficient insurance through a general liability policy. This one general contractor must oversee the project, and while they will likely hire additional subs and workers to assist with the renovation it’s not permitted for the homeowner to coordinate the work of several different general contractors.
The plans for the work will be submitted along with the other elements of the application such the VA Certificate of Eligibility, income and asset documentation, and the appraisal of the home’s value.
The total renovation costs cannot exceed $35,000, and the work cannot be structural in nature, and must add value to the property. There is no minimum renovation cost requirement, meaning this program can be used to finance even very small projects. The $35,000 must include contingency funds and all inspection fees.
It is extremely common for construction and home renovation projects to exceed their original budget. It’s possible that once the work begins and a wall is opened up or flooring is removed additional issues are discovered that warrant their own repairs. Because of this a contingency reserve is required. When the total cost is between $0 and $15,000 the required contingency is 20% of the total cost. For projects $15,001 or greater 15% is required.
When the loan closes the total amount to be spent on the renovations will be put into an escrow account, and will be used to pay the contractor.
The work on the home must begin within 30 days of the execution of the agreement. While the project is underway work cannot stop for more than 30 consecutive days, and must be completed within 4 months or the time period stated on the agreement, whichever is shorter. It is important that the general contractor understands these requirements and plans his or her work to accommodate them.
As work is completed and verified by an inspection, the contractor will receive portions of the payment as outlined in the agreement. When the full project is complete a final inspection will be conducted and a final payment will be made to the contractor for the balance due. Any funds remaining in escrow that turned out not to be needed for the renovation will be applied towards the principal balance of the loan.
Not Just For Purchases
The VA Renovation Loan can also be used by homeowners to finance a renovation to their existing home through a refinance. It is often much more cost effective, and certainly simpler, to make improvements to a property rather than to move to find the desired features that the current home may be lacking.
In a refinance transaction no more than $500 can be taken as cash out to the borrower.
For more information on the VA Renovation Loan visit afrwholesale.com.
Photography by [Sergey Nivens] © shutterstock.com
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