VA Home Renovation Loan: Everything You Need to Know
Are you planning to apply for a VA home renovation loan? Do you aim to live in your dream home without having to worry about saving for years? Dreaming of living in a perfectly beautiful and fulfilling home is something we’ve all been through and lived. However, the sources or possibilities of getting access to a home that you can call your own and properly decorate/furnish for a short or long time and achieve extreme comfort are evidently vast.
So you may be wondering what comes after buying a home that needs repairing or if you’ve been living in your ideal home for years and now it is in need of a renovation? You are probably wondering where you will get the money to fix all the issues that are becoming apparent in your home. A renovation is the most crucial aspect of maintaining an ideal and healthy living space in the same home. Speaking of which, one effective way to handle these renovation expenses in the U.S. is through a VA home renovation loan. Are you curious to know how that loan works? Well then, let’s explore it further n detail!
What Is A VA Renovation Loan?
Starting with the most important question anyone would have when they hear about a VA renovation loan for the first time – what exactly is this loan? If we go by the name, a VA loan can be mistaken for a type of loan that anyone can access and apply for. However, that’s not true. These VA renovation loans are only accessible to veterans or military members currently serving in the U.S. military. The main goal of this loan is to help veterans purchase and repair the property they plan to own – all using a single VA loan.
What’s more? Well, the VA renovating loan is extremely similar to the traditional VA loans that are used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes, and new construction. In addition, these loan mortgages also don’t require any down payment or mortgage insurance to proceed further. In addition to all this, the VA renovation loan comprises two different loan packages/options for the applicant or borrower. It includes:
- Home Purchase Loan: If you opt for a home purchase loan only with a VA renovation loan service, you will get access to the finances needed to purchase your home. This finance or price is equal to the current market value of your home.
- Home Improvement Loan: As the name suggests, this type of loan involved in the VA renovation is simply for financing the improvements a home (your new or existing home) needs. The maximum price received for the renovation of a home is around $50,000.
In a nutshell, this type of loan helps you cover both – the purchase price and renovation price for a home.
But with so much ease, convenience, and approval chances, what makes these loans still inaccessible for many is the lack of lenders that offer this loan. So if you’re a veteran aiming to borrow a VA renovation loan, you may face a hard time finding a lender who can offer you a VA rehab or renovation loan.
How Does a VA Home Renovation Loan Work?
Once you’re familiar with what a VA home renovation loan covers and who has access to them, you may find it a lot more interesting and helpful for your home financing needs. However, that’s not enough information to help you proceed further with this type of VA loan – without having any prior experience of applying or receiving it.
For a clearer idea, it can be said that a VA renovation loan is more like a second loan. Yet, this loan doesn’t work similarly to how a traditional VA supplemental loan works, i.e., which can also be used for renovations. Instead, the VA renovation loan turns two divided loans of home purchase and renovation into a single loan. It combines the secondary equity loan with the original purchase loan into a single loan – which also means that you have one mortgage rate and a single monthly payment to clear.
Doesn’t that sound like a less burdening and pressurizing loan? It surely is all that. However, there are certain procedures that are needed to be fulfilled before you proceed further with the main requirements of getting the loan approved. This includes:
- Submission of plans regarding the particular renovations that you will be making with the finances
- Submission of the cost of every improvement that you need to make (all mentioned in a list of improvements)
- Submission of the contractor information who will be making these renovations.
In short, your details should be able to prove that the repairs you will make in the home will meet the VA standards, making the home or property VA eligible. This is usually analyzed and confirmed during the underwriting process of the loan. In the end, you can’t expect the whole procedure to end just after you’ve received your finances in the bank – as a VA inspector also comes to assess the home as per VA standards – after the renovations are made.
VA Renovation Loan Process:
So what really goes into the process of a VA home renovation loan? Is that what you’re thinking right now? The answer is simple – you need to fulfill the requirements of the VA renovation loan at the beginning of the VA renovation loan application submission, and in-between, the application proceeds further.
Some of the rules or requirements that you must look out for and prepare yourself for ensign you are ready to apply for a VA renovation loan include:
- The home/property that will be renovated must secure an existing VA-guaranteed loan.
- The home must be occupied by an owner in the first place or reoccupied by the veteran after the renovation work is completed.
- The renovation needs of the home must be created with respect to protecting/improving the basic use and livability ease of the property after renovation (and not for adding interior decorations or styling).
- The niche of repairing work in the home must only be limited to the primary maintenance, replacement, improvement, and acquisition of the real property – it can also include fixture expenses.
- The VA renovation loan doesn’t finance installing any luxury items like swimming pools, BBQ pits, etc.
- Not more than 30% of the loan fund should be used for the maintenance, replacement, improvement, repair, or acquisition of non-fixtures inside the property. This can include items intended for like washing, refrigeration, heating, cooking, etc.
VA Renovation Loan Pros
Here are some of the added benefits and advantages of accessing a VA renovation loan:
VA loans have comparatively lower rates, making its rate affordable than many other relevant loan products that are linked with home financing. Now with the mortgage rates consistently increasing in the loan or financing market, it’s evident that the monthly payments of all the loans may also increase consistently.
At a time like this, getting access to a loan that offers affordable monthly payments is crucial. Yet, the only thing to look out for is how much the VA loan rate increases, as mortgage rates do always increase. So even while being the lowest in rates, the rates of the mortgage loan may still increase.
In contrast to many other home financing loans, the VA home renovation loan offers home buyers 100% home financing. With this ease, you don’t have to make any down payments.
These loans are the most popular product offered by the VA. But the good thing is that they don’t come as the only option for borrowers. In fact, the VA offers two refinances, including the VA cash-out refinance and the IRRRL. With each of these refinances options offering a wide set of benefits of their own, it can be easier and more feasible for the loan borrower to choose options that best fit their needs.
VA Renovation Loan Cons:
Lastly, we can’t possibly conclude this detailed article without talking about the downsides of a VA renovation loan. This simply includes:
The Stress of VA Appraisal:
This is evidently the most exhausting part of the VA loan for every party. Since the VA renovation loan is only guaranteed when the home meets the VA standards while being rightly priced – as per the home value. Hence, it can be easily concluded that these loan standards are quite strict because of the appraisal process.
Funding Fee Cost of VA Loans:
While there is no down payment in a VA renovation loan, you may have to pay a closing fee for this loan. This flat fee is due for the borrower at the time of loan closing. In addition, what’s stressful is that the amount of this fee changes consistently as per the number of times you have availed of a VA loan.
Now that you’re familiar with everything that goes on in a VA renovation loan, it can be easier to decide whether or not you should proceed with one.
If you feel like a VA home renovation loan is just what you need to handle your home buying and renovating finances, then go apply for one now. Good Luck!
For more professional insight and support on a VA renovation loan, click here.