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What is a VA Renovation Loan and Should You Use It?

You’re ready to take the plunge and purchase a home, but with skyrocketing real estate prices, your move-in-ready dream home might be out of reach.

However, if you’re an active-duty member of the military, a veteran, or the spouse of either, a VA renovation loan could be the solution to turning a fixer-upper into your forever home. Whether you’re a first-time homebuyer or want to refinance, the financial benefits of a VA renovation loan are undeniable. 

What is a VA Renovation Loan?

You can receive up to $35,000 for your renovations and the loan rolls the costs of renovations into your mortgage, so you only have one rate and one payment to make—saving you time and money. Also, because the renovation loan is bundled with your mortgage, renovation funds are available without delay at the time of purchase or refinance for immediate use. Additionally, the VA renovation loan requires zero money down and has low closing costs. Your loan can also be financed over 30 years, which could mean a lower monthly payment.

VA Renovation Loan Credit Scores

It’s important to note that VA home renovation loan lenders typically expect a credit score of around 620 in order to reward the renovation loan, but some will consider scores as low as 580. In fact, because the VA guarantees a portion of the loan against loss, lenders are able to be more flexible and favorable with lending terms. The VA home renovation loan allows for seller contributions, too, which could boost your chances of receiving financing. Be sure to speak with your lender to see what is possible.

VA Renovation Loan Interest Rates

VA loans tend to have some of the lowest default rates in the country, largely because of the resources and assistance available to individuals holding a VA loan. Additionally, practically no home loans are assumable after the Great Recession but some VA loans are assumable. This means that if someone wants to buy your home and he or she is  also a veteran and qualifies, they can assume your VA loan. 

VA Renovation Loan Eligibility 

The VA renovation loan is available on the purchase or refinance of your primary residence only, whether it’s a multi-unit property, condo, or a single-family house. If you're considering a VA home renovation loan, improvements must begin within 30 days of closing and you typically have up to three months to complete repairs, which can include:

  • Kitchen and bathroom remodels
  • New plumbing, electrical, or HVAC systems
  • Energy-efficient upgrades
  • Finishing a basement or attic
  • The purchase and installation of new appliances or cabinets
  • New paint
  • The purchase and installation of new windows or flooring

One important thing to note is that new appliances, cabinets, windows, and flooring must be installed in the rooms that are being upgraded. For example, if you are applying for the VA renovation loan in order to renovate a laundry room, you cannot use the funds to purchase a new dishwasher unless that item will be located in the laundry room you’ve been approved to renovate. Also, you can only use up to 25 percent of the loan to purchase new or upgraded appliances.

Lastly, only one general contractor can be used to complete the repairs, and the contractor will be paid directly from the loan. Also, the contractor you work with must be registered with the VA and they must have sufficient insurance through a general insurance liability policy.

Final Thoughts

In today’s market, there are few VA renovation loan lenders out there—but you’ve earned your VA benefits, and you should use them to turn your home dreams into a reality. Work with someone who is efficient, experienced, and understands veterans by scheduling your free consultation with Rick Elmendorf and his team today.