Why might someone choose a fixer-upper over a home that’s move-in ready? Some people are enchanted with the idea of breathing new life into an old home. Some want to put their own stamp on a home with renovations that match their wants and needs. Other practical-minded souls appreciate the chance to get more house for their money by securing a deal on a home that’s bigger or better located than they could otherwise afford. Whatever your reason for opting for a fixer-upper, the challenge of securing funding for the purchase remains, and VA loans are certainly worth exploring. What do you need to know about VA renovation loan guidelines before you set your heart on a fixer-upper?
VA Renovation Loan Guidelines
It’s easy to see why VA loans are so appealing to homebuyers. After all, thanks to the backing offered by the U.S. Department of Veterans Affairs (VA), these popular home loans come with competitive interest rates, up to 100 percent financing, and relaxed qualification standards. However, these loans aren’t for every borrower. For starters, both the borrower and the property will need to meet certain eligibility requirements. In addition, there are also VA renovation loan guidelines that outline how much you may take out to complete the renovations and what types of work can be done with the money.
Who Can Use a VA Renovation Loan?
As with a standard VA purchase loan, VA renovation loans are only available to those who have earned the appropriate housing benefits through their service. The exact requirements vary depending on whether you’re a veteran, an active-duty service member, a member of the National Guard, a Reservist, a military spouse, or a member of a participating service organization, so it’s wise to check the eligibility requirements. It’s also worth noting that eligibility alone is not enough to secure a VA loan. Borrowers must also have sufficient credit and income to qualify for the loan that they are seeking.
What Are the Rules Regarding Property Eligibility?
VA loans are intended to help military families purchase homes that are safe, sound, and sanitary, so there are certain standards that the property must meet to be eligible. For starters, VA loans can only be used to purchase homes that will serve as the borrowers’ primary residence. If you don’t intend to live there, then you’ll need to find another form of funding. In addition, any property purchased with a VA loan must meet the VA’s Minimum Property Requirements (MPRs). However, there’s a little leeway here. As NerdWallet reports, if your fixer-upper isn’t quite up to snuff, you may be able to use the VA renovation loan to pay for the work needed to meet the MPRs.
What About the Renovations?
One of the major advantages of using a VA renovation loan is that you can get funds for both the purchase of your new home and the renovations that it needs in one loan. After selecting a home and providing your contractor’s itemization of the work to be done, the VA appraiser calculates the “as completed” value of the home, which is the figure used for the loan. As Bigger Pockets indicates, the amount included in the loan for renovations cannot exceed 25 percent of the home’s “as completed” value.
An approved contractor must complete any renovations, and the lender disburses funds as the homeowner signs off on completed projects. What types of projects are allowed? Energy-efficient upgrades, weatherization projects, the replacement of major components or systems, and kitchen and bathroom remodels are okay. Roof replacement or repair and foundation repair are also allowed. However, major structural improvements like additions, site improvements, luxury projects like the installation of a swimming pool, or improvements that don’t fit with the surrounding neighborhood are not acceptable.
When you want to buy and remodel a home with one loan, one set of closing costs, and one monthly mortgage payment, a VA renovation loan can be a smart choice. What if you or the fixer-upper that’s won your heart cannot qualify for a VA loan? At PrimeLending of Wichita, we offer a wide range of loan products, including several rehabilitation loans. We’d be delighted to help you explore your options, so reach out to us today.