How to get a VA renovation loan
Quick insights
- A VA renovation loan can allow eligible veterans to purchase a home in need of repair and finance both the purchase price of the home and the repair costs.
- Getting approved for a VA renovation loan is similar to getting approved for a regular VA loan, but requires additional contractor estimates and appraisals.
- VA renovation loans allow you to borrow up to 100% of the after-renovation value, but there are some limits to how you can use the funds.
What are VA renovation loans?
Backed by the U.S. Department of Veterans Affairs (VA), a VA renovation loan lets eligible veterans and their surviving spouses finance both the purchase of a home and the cost of qualified repairs or improvements in a single loan. Also known as VA rehab loans or VA remodel loans, the program helps borrowers buy homes that are habitable but in need of repairs or improvements.
Meanwhile, borrowers can take advantage of the potential benefits of a VA loan, including no down payment requirements (if eligible), competitive interest rates and no private mortgage insurance (PMI) requirement.
Chase does not offer VA renovation loans at this time.
What can a VA home renovation loan be used for?
VA renovation loans are intended to protect and improve the basic livability and usability of a property. This means VA renovation loans can be used to make many repairs and improvements to a home. Another key area where VA loans can be applied is to finance accessibility improvements to a home. This can be especially important for older veterans or veterans with disabilities.
What do you need to qualify for a VA renovation loan?
The key requirements for a VA renovation loan are similar to a regular VA loan, including:
- Certificate of Eligibility (COE): This is documentation showing the borrower’s veteran status.
- A qualifying credit score: There is no minimum required score, but it can be determined by the lender.
- Proof of income and employment: The borrower needs to demonstrate they can afford the monthly mortgage payments.
- Acceptable debt-to-income (DTI) ratio: For VA loans, this is usually 41% or lower. Keep in mind, construction costs will also add to your debt.
In addition, VA renovation loan applications require an estimate showing the cost of repairs provided by a VA-approved contractor. Once the loan has been approved by the lender, you’ll also need to have a home appraisal performed by a completed by a VA-approved home appraiser.
What are the benefits of a VA remodel or renovation loan?
If you’re an eligible veteran, there are some key benefits to consider when weighing a VA renovation loan against other types of renovation loans.
Lower down payment required
The biggest benefit of a VA renovation loan is it might not have a minimum down payment requirement. When compared to the minimum down payment of 3% required for a conventional renovation loan and the 3.5% minimum required for an FHA 203(k) renovation loan, this can potentially save thousands of dollars up front.
Keep in mind your down payment will be dependent on your VA entitlement. Your lender may also require a partial down payment if your loan exceeds conforming loan standards for your area.
Appraisal based on the after-renovation value
While a regular VA loan would only allow you to borrow up to the current value of the home, a VA renovation loan lets you borrow up to 100% of the appraised after-renovation value of the home. This may make it possible to borrow the money you need to cover the cost of renovations.
Ability to buy a more affordable home
In a tight real estate market, it may be harder for homebuyers to find a move-in ready home they can afford. A VA renovation loan may allow veterans to purchase an undervalued home that can increase in value after making some improvements.
What are the drawbacks of a VA rehab or renovation loan?
While VA renovation loans do offer a number of great benefits, there are some key challenges to consider as well. First, only a limited number of lenders, even those that offer VA loans, will offer VA renovation loans.
Also, while VA loans can help cover many repair costs, there are tighter restrictions compared to a conventional renovation loan. For example, VA loans:
- May not cover extensive structural repairs
- Can’t be used for luxury improvements, such as a swimming pool or outdoor kitchen
- Are limited to the primary residence (can’t be used to build an accessory dwelling unit (ADU) that isn’t connected to the main residence)
If the total cost to purchase and repair a home exceeds the property’s as-completed value, you’d need to bring additional cash to closing to cover the difference.
Other VA renovation and rehab loan options
If you’re an eligible veteran, own a home and want to make repairs, there are other options available.
VA cash-out refinance
If you currently own a home, a VA cash-out refinance allows you to borrow against the available equity. You can do this by borrowing more than you currently owe on your mortgage balance. You can use a VA cash-out refinance even if you didn’t buy the home with a VA loan originally. Because of your VA loan entitlement, you may also be able to borrow against more of your available equity than you could with a conventional cash-out refinance.
VA energy efficient mortgage
If you want to make improvements that will improve the energy efficiency of a home you plan to buy, the VA also offers an energy efficient mortgage designed to help you finance those improvements.
Non-VA renovation loans
If you’re an eligible veteran but either can’t qualify for a VA renovation loan or you want to make improvements that aren’t allowed under the VA renovation loan program, there are other options available as well.
FHA 203(k) loans
FHA 203(k) loans are renovation loans backed by the Federal Housing Administration (FHA). This loan allows you to finance both the purchase and repair costs of a home. However, these loans have lower borrowing limits and include both upfront and annual mortgage insurance premiums, which can add to the cost. Chase does not offer 203(k) loans at this time.
Conventional renovation loans
If you have good credit and can afford a larger down payment, a conventional renovation loan may allow you greater flexibility in terms of how you use your loan. With a conventional loan, you can make luxury improvements and have less stringent appraisal requirements. You can also use the funds to invest in second homes and investment properties.
In summary
Whether you’re purchasing an existing home or building a new one, the ability to renovate a home with as little as 0% down can help many veterans achieve their dreams of homeownership. To take advantage of these benefits, and for more information on eligibility and options, talk with a home lending expert. They can help you determine if a VA renovation loan is the right option for you.
