VA Renovation loans allow veterans to finance upgrades, changes and / or repairs to their home. While similar to a VA Escrow hold-back, VA Renovation loan program allows for optional upgrades and handles higher cost projects.
What is a VA Renovation Mortgage?
A VA Renovation home loan allows renovation costs to be financed into your VA mortgage. Using a home’s “future appraised value” (or “after improved value”) makes the Renovation loan unique. In short, VA appraisers value the subject property based on what it will be worth after the proposed renovations are complete.
In other words, rather than use current value lenders use what value the appraiser projects the home will be worth after the reno project completes. However, lenders can use this higher value despite the work not being completed – or even started yet!
The big benefit of using Future Value – it creates more room to finance the renovation project into the VA loan.
How Does VA Renovation Loan Work?
The VA Renovation loan allows veterans to borrow money for upgrades, updates and/or repairs to their homes. Additionally, veterans can use the Renovation loan whether purchasing a home OR refinancing their existing home.
In short, after a VA Renovation loan closes the veteran still ends up with one VA loan. The new VA loan amount includes the renovation funds. Then, after closing the veteran’s VA lender pays contractors throughout the reno process. These payments come out of the proceeds included in the new VA loan amount.
Upgrades & Updates Allowed
The wide array of allowed repairs makes a VA Renovation loan a very useful program. In fact, the list of allowed repairs rivals most similar product types offered in the mortgage industry. For example, here is a list of common and allowed items:
- Roof Repairs
- Repairs on existing swimming pools
- New siding, window, doors
- New attached or detached garage (build new or repairs to existing)
- Interior or exterior paint
- New kitchen (cabinets, flooring, appliances etc…)
- Electrical repair or replacement
- Plumbing repair or replacement
- Air conditioning/heating repair or replacement
- Build new or repair existing driveway, walkways and fences
- Mold remediation or mold removal
- Handicap accessibility alterations/improvements
- New flooring (tile, wood, carpet)
- Termite related treatment/repair
- Foundation repair
- Room additions
- Finish basements
VA Renovation Loan Benefits
The VA Renovation loan program offers several benefits to military veteran borrowers. However, using the home’s “future value” or “after repair value” makes this program so effective. VA allows VA mortgage lenders to use a value based on what the home will be worth AFTER all renovations are complete.
- Borrowed rehab funds at a competitive interest rate
- Allows renovation work to take place AFTER loan funds/closes
- Close on purchase where required repairs are listed on VA appraisal (also see VA escrow hold-back)
- Lower payments due to amortization options
- Prevent from tapping into retirement and/or cash resources to fund renovation
Using Future Value vs. Current Value
In other words, VA lenders do not use a home’s current market value on a Renovation loan. Instead, lenders use a VA appraisers projection of the home’s value after the renovations are complete. Due to the fact that VA Renovation loans cannot exceed 100% of the value used by a lender, using a future value vs current value opens up more room to finance renovations.
Other VA Renovation Loan Benefits
In addition to using future value, the VA Renovation loan has several other features. In fact, this program gives veteran’s flexibility and possible cost savings relative to upgrading and updating their homes. For example: