What is the VA Renovation Loan?
The VA Renovation Loan brings together some of the most innovative and attractive features of several popular mortgage programs. It provides no money down financing that covers not only the current value of the property, but the cost of remodeling and repairs as well. This program is intended for minor updates and work done on the home, with no minimum or maximum renovation cost requirement.
Program overlays and eligibility during the pandemic include:
Because the Veteran Administration requires that a property meet minimum property standards in order to qualify for VA financing, it is not uncommon for deals to fall through during the inspection phase. The seller may not want to pay for all the repairs needed to ensure the home meets the VA’s high standards. With a VA Renovation Loan the buyers may be able to move forward with the purchase of a home they love, while borrowing the additional funds needed to fix the issues with the property, still with zero down payment.
The Veterans Administration generally requires an annual fee of $100 per third party originator for each entity that sponsors their origination. AFR pays this fee on behalf of its brokers and correspondents on AFR-related VA loans!
VA Renovation Loan Basics
- Purchase and Refinance Options
- Maximum renovation cost of $100,000
- Used to finance minor remodeling and non-structural repairs
- Renovations greater than $50,000 require a 203(k) HUD Consultant
- Fully Amortizing Fixed Rate
- 10 year, 15 year, 20 year, 25 year, and 30 year term options
- One or Two Unit Homes
- Primary Residence Only
What are the benefits?
VA mortgages offer one of the only no money down home financing options available in the marketplace. This is a huge advantage to qualifying veterans, military personnel, and their families, who can become homeowners without waiting many years or depleting their savings.
Low Mortgage Rates
The VA Renovation Loan makes it possible to finance both the purchase or refinance of a home and the cost of repairs or updates in one low rate, first mortgage loan. This can offer considerable savings when compared to a higher rate second mortgage, using other types of credit such as credit cards, or a home equity line of credit with a variable interest rate that could increase over time.
Who is eligible for a VA Renovation Loan?
As with any VA loan the borrower must be a qualifying active duty member of the US military, veteran, or surviving spouse. Other requirements of this program include:
- Repairs must be minor remodeling or cosmetic in nature and not on the list of ineligible repairs
- Construction must be completed within four months of closing
- Only one General Contractor may be used
- General Contractor must be registered with the VA
- General Contractor must carry sufficient insurance through a current general insurance liability policy
- 620 minimum FICO score (640 Minimum Qualifying Credit Score for all qualifying borrowers when the loan amount is exceeding the VA county loan limits.)
Borrowers will also need to meet the income, asset, and minimum property standard requirements of VA loans. There are geographic restrictions associated with this program, rendering the following states ineligible:
AFR does not operate in the states of Hawaii and Alaska and does not permit loans with a subject property in Hawaii or Alaska.
In which scenarios is the VA Renovation Loan useful?
This can be an ideal program for veterans or military personnel who want to purchase a fixer upper while also taking advantage of the 100% financing option available to them as a result of their service to our country.
Military families often move frequently as they take on new assignments throughout the career of the service member(s). When relocating to a new part of the country, especially on a short timeframe, it may be challenging to find a home that meets the needs of the buyers. Trying to purchase in a particular school district, close to base where there is the support of other military households, or within commuting distance of a spouse’s new employer can make things even more difficult. Opening the search to include properties in need of a few repairs or updates can make it much easier to find that ideal home.
The VA Renovation Loan can also come into play on transactions where it was not part of the original plan. As touched on earlier it can be used to save the deal when issues are discovered through the inspection. Perhaps the potential buyers have found a home they love, in the perfect location, but the home inspection reveals that the roof is in need of repair. The would-be buyers may not be able to afford to pay for the work out of pocket, and the sellers might feel they could easily sell the home as-is in the current market and are not offering to cover the cost of fixing the roof. The home will not qualify for VA financing until the repairs are complete. A VA Renovation Loan might be a great fit in this scenario, allowing the buyers to borrow the additional funds needed to pay for the roofing work, and saving them from beginning again in their search for a new home.
Buying a Home with a VA Renovation Loan
When purchasing a property with a VA Renovation Loan the plans for the work, including information on the general contractor, are evaluated with the other documentation during the underwriting phase. An appraisal will show the value of the home both before and after the renovation is complete. Once the work is finished there will be a final certification by a VA Inspector to ensure the home meets the property standards and is ready to be enjoyed by its new owners.
VA Renovation Loan Refinancing
Consumers are often surprised to learn that renovation loans, including the VA Renovation Loan, can also be used to refinance an existing mortgage. This can be an excellent alternative to a second mortgage or cash-out refinance* when the funds will be used to repair or update the subject property.
Other Programs to Consider
If the VA Renovation Loan is not an ideal fit for a particular scenario here are a few other products to explore:
- For larger structural updates: FHA Standard 203(k) Loan
- To finance luxury projects such as installing a pool or outdoor kitchen: Fannie Mae HomeStyle® Renovation Mortgage
- Streamlined, simplified VA refinance option if repair costs are not needed: VA Interest Rate Reduction Refinance Loan (IRRRL)
*Texas Renovation refinance transactions are not permitted.