VA Renovation loans fund upgrades and repairs to veteran’s home. While similar to VA Escrow hold-backs, VA Renovation loans allow optional upgrades. Additionally it allows for high cost projects.
What is a VA Renovation Mortgage?
VA Renovation home loans finance reno costs into a new VA loan. In short, veteran’s may use this loan to borrower extra funds used to pay for home upgrades & repairs.
The key is the VA appraiser’s future value. This appraisal creates room to add Renovation funds to the VA loan. Then, once the new VA loan funds, the Renovation works begins. Lastly, payments to contractors are made by the lender from the financed Renovation funds portion of the veteran’s new VA home loan.
VA Renovation Loan – 4 Extra Steps
At first, VA renovation loans mirror a standard VA home loan Pre-Qualification. Once the above steps are complete, VA Renovation Mortgage loans also include these 4 steps.
4 Steps for VA Renovation Mortgages
- Figure Renovation Cost
Work with loan officer on the amount needed to fund Renovation Project.
- Loan Officer Structures VA Renovation Loan
New VA mortgage includes funds to cover Renovation Project cost.
- VA Appraiser Gives Home “Future Value”
Home is appraised based on what value will be post Renovation (“Future Value”).
- Loan Funds & Includes Renovation Funds
Post funding, as Renovation work is done lender pays contractors from new VA mortgage funds.
Upgrades & Updates Allowed On VA Renovation Loans
The long list of allowed repairs makes a VA Reno loan a useful program. In fact, the allowed repairs list rivals most similar non-VA mortgage product types available. For example, VA Renovation loans allow the following:
- 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: