VA now offers a Renovation Mortgage that allows our veterans and some family members to borrow money to cover the costs of renovating a home and bases the mortgage loan amount on the home’s improved value.
For years, veterans and their families have been taking advantage of the home loan program offered through the Department of Veteran Administration (VA). This program required the homes to meet minimum property requirements. These requirements were put into place to protect the buyer from unexpected, and usually expensive, repairs. Their minimum property requirements centered around safety, sanitation, and structural stability; features such as mechanical systems (HVAC), a reliable potable water supply, and sewage disposal. Also, included in the requirements were roofs in good shape and no presence of lead paint. If a home did not meet these standards, the veteran would need to find means to fix it up prior to purchase or move onto a different property.
The VA began noticing an increased demand for alteration and repair loans, due to the aging housing stock in the US. As a result, VA now offers a Renovation Mortgage that allows our veterans and some family members to borrow money to cover the costs of renovating a home and bases the mortgage loan amount on the home’s improved value.
How Could You Use A VA Renovation Loan?
You have served your country, now allow us to serve you. It can be difficult to find room in your budget for renovations or repair to a home you are looking to buy or one you currently own, allow us to help you with financing.
This VA Renovation Loan isn’t only for those purchasing a home, your current home can be refinanced with the VA Renovation Loan, as well. Just think, if you turn the home you have into the home you need or even the one you want. This means, no house hunting on the weekends, no long hours of packing and cleaning your current home, no buyer stopping by to look at your house at inconvenient times, and no moving day. Your neighbors, your grocery store, and your routine will all stay the same—the only thing changing will be the value of your current home and how much more you are enjoying the house.
The refinance rolls the cost of the home repairs and the value of the home into one mortgage, resulting in one single monthly payment. This is unlike using a credit card or personal loan, which typically have higher interest rates and shorter repayment terms, to finance your home improvement projects. In fact, refinancing with a VA Renovation Loan may lower your monthly mortgage payments and allow you a bit of breathing room with a longer repayment period.
- The home must be the borrower’s primary residence.
- All geographic areas are eligible
- It could be a single family/ standalone home, a PUD (planned unit development), a condo that meets the requirements, an REO (real estate owned) also known as a bank owned home
The renovations and replacements must be approved by the VA, to ensure the home meets their standards.
- Structural work is not permitted
- Maximum of $35,000.00 in renovation costs, including fees
- No Minimum dollar amount in repairs
- Common improvements approved by VA include:
- Removal of lead based paint
- Flooring repair
- Roof repairs
- Energy efficiency upgrades
- HVAC repairs and replacements
If you qualify for VA Home Loan you will qualify for a VA Renovation Loan; some of these include:
- You are an honorably discharged veteran, are currently serving on active duty or have completed a total of six years of service in the National Guard or selected reserves.
- Certain surviving spouses of veterans are also eligible
- Minimum credit score of 620, no credit score loans are also available
- No Down Payment Required
- No income restrictions
- Previous home owners and first time home buyers are welcome
Similar to other renovation mortgage products, the VA Renovation Loan does not allow for “do it yourself” style work so a contractor is required. You can learn more about why not allowing for “do it yourself” improvements benefits both you and the mortgage lender in our blog. But unlike, other renovation mortgage products, your contractor must be approved by the Department of Veteran Affairs. You can access the list on their website. It is your responsibility to find your contractor(s) and to work with him, her or even them to create an accurate work write-up and contract that outline the repairs/improvements along with their costs, including labor. This will allow your mortgage lender to accurately price the loan. Your contractor will need to provide the following documentation:
- All contractors must be appropriately licensed and qualified (or utilize qualified sub-contractors) in their fields.
- Contractors must submit, for approval; a copy of their license, proof of insurance, and a completed profile, including vendor and client referrals and a W-9.
- Borrowers and Contractors will sign an agreement spelling out the renovation costs and process.
If possible, before you make an offer or write a contract, begin working on your renovation quote. We recommend it being started, and hopefully ready, prior to application.
The selection of the contractor is an important step. The only requirements we have are those listed in the Contractor Requirements Section. Remember, this person will be doing the work of turning that house into your dream home, so, trusting him/ her/ them will become very important. If you are looking for a contractor after you have already submitted your loan application, you will need to select one within 4 days of submitting your application to make it to ensure the loan closes in 45 days. From there your contractor will put together the bid or work write up, laying out the work that will be done and how much it will cost.
To ensure you are moving at the right speed, the contractor’s bid/work write up should make it to your mortgage banker a week after your application submission. We need a complete and detailed work write-up or work contract of ALL repairs/ upgrades to properly calculate the total loan amount. Once confirmed, the work contract, should be signed and dated by you and any co-borrower(s) and contractor. The calculated loan amount does not have a direct effect on the contract price but, does affect the closing costs and possible seller requested contributions. This bid/ work write up will need to contain the following information:
- Detailed cost to renovate/repair, separated by material and labor.
- A brief description of the work that will be performed
- An expected completion time (to be completed in 6 months from loan closing is acceptable).
- A warranty or guaranty for the service provided.
It is important to have a well-detailed work write-up so the appraiser can clearly visualize the upgrades to the home.
Depending on the type of Renovation loan, a Consultant or project review may be necessary, in addition to the bid/work write up. Once the bid/work write up is complete the loan moves along in a pretty standard way. You will sit down with your mortgage banker to review any additional documentation needs. At the same time, we will order an appraisal. The appraiser is given a window of time to complete the appraisal, typically ten business days. The accuracy of the bid/work write up including detailed repairs/upgrades and cost, is crucial to get an accurate appraisal. The appraisal will dictate what your home is estimated to be worth after the upgrades, and in turn, will dictate the maximum amount we can lend. You can learn more about appraisals here.
It’s advisable to lock the interest rate on the loan only after the work write up is complete to ensure adequate process time (45-day minimal locks are required).
The loan process becomes like any other as documents are secured, credit approval is completed, all verifications are processed. The borrower will receive TRID forms, along with all additional disclosures needed for loan completion. All contracted work begins after the loan closes. The renovation money will be held in an interest-bearing escrow reserve account and disbursed according to the terms of the renovation schedule, which must be completed with 90 days of closing. Realtors, are officially ‘finished’ with their part the day we close. We will continue to work alongside the borrower and contractor, as the home is transformed!