The U.S. Department of Veterans Affairs (VA) offers a few home purchase and mortgage refinance loan options depending on your needs. One type of program offered by the VA is the VA renovation loan.
What is a VA renovation loan?
A VA renovation loan is a rehabilitation loan that can help you buy or refinance a home that needs repair or modernization. In addition to the cost of the house, the Veteran can include the cost of the repairs or improvements into their VA loan.
Whether you are looking at purchasing a house needing repairs or wanting to update your home, the VA renovation loan allows you to personalize the home to suit your taste.
Find the perfect fixer-upper? You can also use a renovation loan to buy a home below market value and make it your own. You can close on a home you can afford and possibly end up with instant equity, tapping into a market that cash investors typically dominate.
Available for both purchase and refinance, the VA renovation carries all of the same benefits as a non-renovation VA loan:
- Up to 100% financing is available with no mortgage insurance—up to 90% on a refinance
- VA rules limit your closing costs
- The seller may pay a portion of closing costs (up to 4% of the purchase price)
- You can't be charged a penalty fee if you pay off the loan early
- If you have trouble making payments, the VA may be able to help
- Surviving Spouses of deceased Veterans may also be eligible
VA renovation loan requirements
Below are the requirements for a VA rehab loan:
- The owner must occupy the home as their primary residence
- No second homes or investment properties
- The transaction must be a purchase loan or refinance
- Loans are subject to specific appraisal and renovation requirements
- Structural repairs or improvements are NOT allowed
- Total renovation costs cannot exceed $50,000, including the contractor bid amount and financed fees
- Renovation must be completed within 60 days of closing
There's no need to worry about post-closing costs like inspections, permit fees, architectural or engineering drawings, and the supplemental origination fee. These fees can be financed into your renovation loan. You'll also have the security of a contingency reserve.
Once you start your project, you may uncover additional health or safety repairs that need to be done. An additional 10% to 20% of your bid cost will be built in as a contingency reserve to use as a safety net.
Non-structural home repair examples include:
- Roofs, gutters, and downspouts
- Existing HVAC systems
- Plumbing and electrical systems
- Flooring and carpeting
- Interior and exterior paint
- Appliances (purchase and installation)
- Accessibility improvements
- Exterior decks, patios, and porches
- Basem*nt finishing (non-structural)
- Basem*nt waterproofing
- Weatherization upgrades
- Window and door replacements
- Wall residing
- Septic and well systems
VA renovation loan eligibility
To be eligible for a VA home loan, the Veteran must be the personal occupant of the home and must have sufficient income, suitable credit, and a valid Certificate of Eligibility (COE). To obtain a COE, you must have been discharged under conditions other than dishonorable and meet certain service requirements as listed below:*
| Qualifying wartime & peacetime periods | Qualifying active duty dates | Minimum active duty service requirement |
|---|---|---|
| Status - Veteran | ||
| WWII | 9/16/1940 – 7/25/1947 | 90 total days |
| Post-WWII | 7/26/1947 – 6/26/1950 | 181 continuous days |
| Korean War | 6/27/1950 – 1/31/1955 | 90 total days |
| Post-Korean War | 2/1/1955 – 8/4/1964 | 181 consecutive days |
| Vietnam War | 8/5/1964 – 5/7/1975 For Veterans who served in the Republic of Vietnam, the beginning date is 2/28/1961. | 90 total days |
| Post-Vietnam War | 5/8/1975 – 9/7/1980 The ending date for officers is 10/16/1981. | 181 continuous days |
| 24-month rule | 9/8/1980 – 8/1/1990 The beginning date for officers is 10/17/1981. | – 24 continuous months OR – the full period (at least 181 days) for which you were called or ordered to active duty |
| Gulf War | 8/2/1990 – Present | – 24 continuous months OR – the full period (at least 90 days) for which you were called or ordered to active duty |
| Status - Currently On Active Duty | ||
| Any | Any | 90 continuous days |
| Status - National Guard and Reserve Member | ||
| Gulf War | 8/2/1990 – Present | 90 days of active service |
Other eligibility criteria:
- Six years of service in the Selected Reserve or National Guard AND
- Were discharged honorably OR
- Were placed on the retired list OR
- Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable OR
- Continue to serve in the Selected Reserve
Eligible vs. ineligible properties
Eligible properties:
- 1 to 4-unit attached and detached single-family homes residences and planned unit developments
- Condos
- Modular homes
Ineligible properties:
- Cooperatives
- New Construction
- Manufactured homes
- Properties with non-conforming construction that cannot be remedied.
- Mixed-use
- Leasehold
Pros and cons of VA renovation loan
Here are some of the pros and cons of a VA renovation loan:
Pros of VA renovation loan
- One loan, one monthly payment: Combine the cost of purchasing your home and the renovation into a single monthly payment.
- Competitive interest rates: VA loans typically offer competitive interest rates, which can save you money over the life of the loan.
- No down payment: In most cases, VA renovation loans do not require a down payment.
- Flexible credit requirements: VA loans often have more flexible credit requirements. This can be beneficial for borrowers with less-than-perfect credit.
- No private mortgage insurance (PMI): VA loans do not require private mortgage insurance, even with a low or no down payment.
- Ability to finance repairs: You can finance the cost of renovations into the loan, making it easier to fund necessary improvements.
- Support for energy-efficient improvements: VA renovation loans may include financing for energy-efficient upgrades. This can help reduce utility bills and improve the home's sustainability.
- Streamlined process: Some VA renovation loans offer a streamlined process. This makes it quicker and more efficient to get approval and complete renovations.
Cons of VA renovation loan
- Property Eligibility: The home you intend to purchase and renovate must meet certain eligibility requirements set by the VA.
- Funding Limits: VA renovation loans have limits on the amount you can borrow for both the purchase price and renovation costs.
- Fees: While VA loans typically have lower closing costs, they still come with fees, such as the VA funding fee.
- Complexity: The process of obtaining a VA renovation loan can be more complex as it involves additional documentation and approval steps.
- Risk of over-improvement: If you invest too much in renovations, you risk over-improving the property for its neighborhood, which can affect resale value.
It's important to work with an experienced VA lender who can help you take advantage of the pros and avoid the cons of a VA renovation loan.
How to apply for a VA home loan
Here are five simple steps to apply for a Veteran home loan:
- Make sure you meet the VA home loan requirements criteria for application
- Get a valid Certificate of Eligibility (COE)
- Choose an approved lender for your VA home loan
- Apply for loan pre-approval to determine how much you can afford
- Find your dream home
CrossCountry Mortgage (CCM) has helped Active Military Personnel, Veterans, and other eligible groups make sense of VA loans, guide them through the process, and ultimately match them with the best mortgage option. In addition to employing nearly 250 Veterans and Active-Duty Service Members, as well as offering VA loans as part of its lending portfolio, we have more than 600 branches across all 50 states staffed by lending professionals who are committed to their communities and the needs of Active Military Personnel, their Families, and Veterans. Our commitment to the Military extends to helping take the guesswork out of VA home loans and making obtaining one a straightforward and painless process.
If you do not meet the minimum service requirements, you may still be eligible if you were discharged due to (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) a service-connected disability.
*Table taken from here http://www.benefits.va.gov/HOMELOANS/purchaseco_ certificate.asp on 12/9/2013. Eligibility requirements are subject to change as deemed necessary by the VA. All VA loans subject to underwriting approval. Certain restrictions apply. Call for details.
