A VA Home Improvement Mortgage to Fund a Fixer-Upper: Is It Right For You?


You are a member of the service or a veteran wishing to buy a home. But your budget is tight, and you will likely have to purchase a diamond property that you can readjust. Where can you turn for financing?

The Department of Veterans Affairs (VA) has a home improvement loan that funds the purchase price of a home as well as the cost of repair in one fully amortizing fixed rate mortgage. You won’t have to pursue two separate financings – one for the mortgage and one for the renovations.

Or, let’s say you already own a home that needs major upgrades. Instead of shopping around for a home equity loan, home equity line of credit (HELOC), or traditional withdrawal refi, you can go for a VA home improvement loan and use it to refinance your property and pay for improvements.

It has all the benefits of a traditional VA loan, such as no down payment required, lower minimum credit scores, and no mortgage insurance required. Cash refinances and home equity loans generally have more stringent standards.

“The VA Home Improvement Loan is an incredibly beneficial resource for any qualifying borrower looking to update and personalize their next purchase or transform their existing property,” said Richie Duncan, Senior Loan Officer at VA Nationwide Home Loans (VANationwide.com), a VA home improvement loan provider based in Overland Park, Kansas.

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Rules and restrictions apply, of course. Although the guidelines differ from lender to lender, to be eligible for this loan vehicle, you generally must meet the following criteria:

  • Be a service member or veteran who has served a minimum of 90 consecutive days of wartime active service, 181 days of peacetime active service or six years of National Guard service, or be married to a member who died in the line of duty or from a service-related disability.
  • Obtain a valid certificate of eligibility.
  • Use the house as your primary residence. The home cannot be a multi-unit or mixed-use property, condo, demolished / elevated / relocated condominium, co-op, investment property, or mobile home on leased land. Existing built homes, foreclosures and short sale homes are eligible.
  • Do not exceed a maximum renovation cost of $ 100,000.
  • Choose a repayment term of 10, 15, 20, 25 or 30 years.
  • Have a minimum credit score, usually between at least 580 and 620.
  • Do not exceed a loan to value ratio of 90% (of the estimated value) if it is a refinance loan.
  • Do not exceed a debt-to-income ratio of 50% in most cases.
  • Hire a general contractor / subcontractors to perform the work. (Borrowers cannot do the renovations themselves.)
  • Start work within 30 days and complete all work within 120 days of loan closing.
  • Apply funding to renovations that are not structural or considered luxury items. Among the eligible improvements are those that eliminate health and safety risks; connection to public water and sewer networks; repair or replace plumbing, HVAC and / or electrical systems; make changes to improve functionality and modernization; replace a worn roof; make energy conservation improvements; and improving accessibility for people with disabilities.

“If you need to make significant structural improvements, such as changing the support beams, doing foundation work, building an addition, and moving walls that require new load-bearing beams, this loan is not not applicable, ”Duncan said.

Also, “you can’t borrow more than the combined cost of all your repairs,” said Eric Nerhood, owner of Premier Property Buyers, a real estate investment and turnaround company based in Seal Beach, Calif. “You should only use contractors licensed by VA. You need to have verifiable income with tolerable debt levels. And you can’t buy a house, empty it, and renovate it from scratch. “

This loan is ideal for qualified homeowners who have not accumulated enough equity.

“Anyone who hasn’t built up enough equity in their existing home, but for whom the updates will make a huge difference, should give this serious thought, especially if you’ve noticed that your home’s value is rising rapidly in your home. region and want to keep pace. and capitalize on the potential for substantial gains in stocks, ”Duncan said.

Be forewarned, however: Finding a lender who offers a VA home improvement loan won’t be easy, Duncan said.

“These are very complicated loans. They need more documentation, multiple conversations, approval from subcontractors and getting everyone to agree and meet closing deadlines, ”Duncan said. “Also, in warmer markets it may be more difficult to convince a seller to allow you to use this loan.”

If you are not eligible for a VA home improvement loan or want to do your due diligence as a borrower, you can explore alternatives like an FHA 203 (k) loan, VA Cash-Out refinance loan. , VA Energy Efficient Mortgage, Fannie Mae HomeStyle Home improvement loan, HELOC or home loan. Each of these options has its pros and cons, but some could have more restrictions and cost more in the form of higher interest rates, down payment, and closing costs.

– Erik J. Martin is a writer for Three Creeks Media

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