Borrowers can use a VA loan to buy and renovate a fixer-upper home with the VA renovation loan, also sometimes known as a VA rehab loan.
There are some guidelines about what kinds of home improvements can be financed, and borrowers must meet the VA’s eligibility requirements.
But if you’re looking to purchase a home that does not meet the VA’s Minimum Property Requirements (MPRs), then a VA renovation loan could allow you to finance the home you want and still benefit from the significant advantages of the VA home loan program.
There are also VA home improvement loan options available to military homeowners who want to make improvements to their current homes.
In this article (Skip to...)
- What is a VA renovation loan?
- What are the Minimum Property Requirements?
- VA rehab loan requirements
- VA home improvement loan options
- VA renovation loan process
- VA rehab loan: Allowed improvements
- Alternatives to a VA renovation loan
- VA renovation loan FAQs
- Is the VA renovation loan for you?
What is a VA renovation loan?
The VA renovation loan combines two loans into one single loan:
- Home purchase loan: This portion of the loan finances the purchase price of the home.
- Home improvement loan: This portion of the loan finances improvements to the home, up to $50,000.
A regular VA purchase loan won’t offer financing beyond the current market value of the home. That means borrowers won’t be able to get enough funding to purchase the home and renovate it. In the past, this meant many older homes that needed extensive repairs weren’t eligible for the VA loan program.
In 2018, the Department of Veterans Affairs introduced the VA renovation loan to give VA borrowers more options.
What are the VA Minimum Property Requirements (MPRs)?
The VA Minimum Property Requirements are guidelines intended to ensure that any home purchased with the VA loan program is safe, sanitary, and structurally sound.
The VA loan program is intended to get military members into primary residences, which means any homes need to meet a certain threshold for livability.
Some of these requirements include:
- Working electric, heating, and cooling systems
- Adequate roofing
- Sufficient size for basic living needs
- Clean, continuous water supply
- No lead-based paint
- No termites, fungus, or dry rot
- Sanitary sewage disposal
- Accessible and properly vented crawl spaces and/or attics
As part of the VA loan process, a VA appraisal will evaluate the home to make sure it meets these requirements. For a more comprehensive explanation of the VA Minimum Property Requirements, read our article here.
VA rehab loan requirements 2024
As with all VA loans, borrowers looking to get a VA renovation loan must meet the VA eligibility requirements.
To obtain a VA loan, the borrower will need to meet the VA’s service requirements, in addition to the lender’s financial requirements.
Borrower will verify their service eligibility with a Certificate of Eligibility (COE). A lender can help you request this.
VA home improvement loan options
The VA offers three different kinds of home improvement loans, including the VA renovation loan. Your home improvement goals will determine which of the loan types is best for your situation. The options include:
- VA renovation loan
- VA supplemental loan
- VA energy efficient mortgage
Note that all of these loans are part of the VA loan program. As a result, all of these loans require that the borrower pay the VA funding fee as part of the closing costs.
VA home renovation loan
The VA renovation is intended for purchasing a property that does not meet the VA’s Minimum Property Requirements (MPRs) and financing any needed renovation costs, up to $50,000 above the cost of acquiring the home.
A VA renovation loan allows the borrower to access equity based on the as-completed value of the repaired home, rather than its current value.
Some factors to consider with a VA home renovation loan:
- The process can be slow. To close a VA renovation loan, a borrower will need to provide a repair bid from a licensed contractor. This process can take longer than it would for a FHA renovation loan.
- There are loan limits. VA renovation loans are typically capped, and the upper limit varies somewhat from lender to lender. It’s unlikely that any lender will finance renovation costs beyond $50,000.
- Construction must be done by a third party. The VA requires that any repairs funded with a VA loan be done by a licensed contractor, which means borrowers cannot simply use the funds for DIY projects.
- Repairs must meet local and state requirements. It’s best to know what these requirements are before beginning the project. The VA mandates that the property must meet these standards within 120 days of the loan’s administration.
VA supplemental loan
VA supplemental loans are intended to fund the improvement or repair of a home that already has a VA mortgage on it.
Unlike a VA renovation loan, these loans only finance repair costs and do not finance the not home acquisition cost.
A VA supplemental loan can be added to an existing VA loan or VA refinance, or it can be added later, as a second mortgage, rather like a home equity loan. A VA supplemental loan won’t impact the interest rate on an existing VA loan but it may have a slightly higher interest rate since it’s considered a second loan.
Some factors to consider with a VA supplemental loan:
- Not to be used for luxuries. Any renovations financed with a VA supplemental loan should address the basic livability of the property. These loans cannot be used for unnecessary additions, including barbeque pits or swimming pools.
- “30%” rule. No more than 30 percent of the VA supplemental loan funds can be used for the “maintenance, replacement, repair, or acquisition” of appliance fixtures for refrigeration, cooking, washing, or heating.
- Must be owner-occupied. VA supplemental loans are intended to finance improvements to the borrower’s current and primary residence.
- Notice of value. For VA supplemental loans of more than $3,500, borrowers will need to provide a Notice of Value (NOV), which indicates the estimated cost of all planned repairs.
- Loan limits vary. The upper limit available with a VA supplemental loan will depend on the borrower’s available entitlement, local loan limits, and the total value of the repairs.
VA energy efficient mortgage
Energy efficient mortgages (EEMs) are loans intended to enable VA homebuyers — or VA homeowners — to finance the cost of upgrades to the home’s energy efficiency. Typically, the VA will guarantee borrowers up to $6,000 for energy-efficiency upgrades. For amounts beyond that, borrowers will need to get a Certificate of Commitment from the VA.
Acceptable energy efficient mortgage improvements include:
- Solar heating and cooling systems
- Additional insulation
- Storm windows and doors
- Furnace efficiency modifications
- Heat pumps
Some factors to consider with a VA energy efficient mortgage:
- Income verification required. For EEMs of more than $3,000, the lender will need to determine if the extra costs are worthwhile, and whether the borrower has sufficient income to cover the increased payment. Below $3,000, the lender assumes the cost will be offset by any decreases in utility bills.
- VA-approved contractor not required. With EEMs, borrowers have the option of making the improvements themselves. In this case, the EEM would simply cover the cost of materials.
- Borrower must have an existing VA mortgage. EEMs are not freestanding mortgage loans. To qualify, the borrower must have an existing VA purchase or refinance loan.
VA renovation loan process
To get approved for a VA renovation loan, the borrower will need to submit details specifying the planned renovations, along with details about the contractor who will complete the work. As part of the underwriting process, the VA lender will confirm that the planned repairs meet VA standards.
Step-by-step
For borrowers looking to finance repairs with a VA home improvement loan, here are the steps.
Obtain a Certificate of Eligibility (COE). This document specifies the details of the borrower’s military service. The VA lender can help request this.
- Get preapproved. Borrowers may need to shop around to find a lender who offers a VA renovation loan.
- Find the right property.
- Get quotes from a VA builder or contractor. The VA will require that any repairs be made by a contractor who is registered with the VA. Borrowers may want to get multiple quotes and compare them to find the best deal.
- Get a VA appraisal. The lender will schedule a VA appraisal to confirm the as-completed value of the home. This will determine the upper limit on the loan amount.
- Close on the loan. Sign the paperwork and begin renovation.
VA rehab loan: Allowed improvements
A VA renovation loan cannot be used for just any renovations. The VA only approves renovation plans that are necessary to bring the property in line with its livability standards.
For example, borrowers will not be able to use a VA renovation loan to upgrade a working kitchen or restyle a functional bathroom.
Renovations that can be financed with a VA renovation loan include:
- Roof repairs
- Foundation repairs
- Flooring repairs
- Plumbing repairs
- Electrical repairs
- HVAC system replacements
Alternatives to a VA renovation loan
The VA renovation loan isn’t the only option available to borrowers looking to repair a fixer-upper. Other loan options include:
- FHA 203(k) loan. This loan type, backed by the Federal Housing Administration (FHA) also rolls the cost of purchase and repair into a single loan.
- VA cash-out refinance loan. For borrowers with an existing VA loan, who are looking to finance home repairs, this loan type is a way to access home equity.
- Fannie Mae HomeStyle Renovation loan. This conforming loan allows borrowers to roll renovation costs into the home purchase loan amount. As with other renovation loans that roll purchase and repair into one loan, it means borrowers will only have one monthly mortgage payment.
- Freddie Mac CHOICErenovation. Similar to the Fannie Mae loan above, this loan type allows borrowers to purchase and repair a home with one mortgage — and therefore, one monthly payment.
VA renovation loan FAQ
Can you use a VA loan to remodel your home?
The VA renovation home loan program is intended to help veterans and active-duty service members finance improvement to make a new home habitable, safe, and sanitary.
For other renovations, particularly remodels that are primarily aesthetic, borrowers will need to seek a different type of loan, such as a VA cash-out refinance or home equity line of credit (HELOC).
How is a VA renovation loan different from a VA loan?
A VA purchase loan can be used to buy a new home that already meets the VA’s requirements for livability, while a VA renovation loan is intended to finance both the cost of acquiring and repairing a home that does not yet meet those livability standards.
Who can get a VA renovation loan?
Any borrower who is eligible for a VA loan is eligible for a VA renovation loan. The VA will confirm that the borrower meets its military service requirements, while each individual lender will set its own qualifying financial standards, including minimum credit score.
Can VA loans include renovation costs?
Yes, a VA renovation loan allows borrowers to finance both the acquisition and repair of a new home.
Does the VA offer renovation loans?
The VA guarantees a few different types of loans that can be used to finance renovation and repair costs.
Is the VA renovation loan for you?
Depending on your goals, the VA renovation loan program can be an excellent option. This type of loan allows you to renovate the home of your choice while taking advantage of the VA loan program’s significant benefits, including:
- No down payment requirement
- No private mortgage insurance
- Competitive interest rates
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