VA Loans Now Have Rehab Loan Option

When agents and lenders and your friends talk about REHAB LOANS, they are usually speaking of FHA 203K and Conventional HomeStyle Renovation Loans. These are the most popular and have been around the longest – we have included information at the bottom of this post for a refresher on these programs.

The takeaway here today, though, is that we now have the option to find lenders who are approved by the VA to start offering VA Renovation Loans as well! Kind of exciting to be able to offer this option to Veterans and Active Service Members that are VA Eligible.

A VA Reno Loan makes it possible for VA loan borrowers to purchase a home in need of repairs or upgrades without having to get a separate loan; rather, the repair costs and purchase price are rolled into a single loan with one monthly payment.
These loans can also be used to refinance your current home loan and build the repairs into the refinance! As with a normal, purchase-only VA loan, VA renovation loans allow borrowers to purchase a home with 0% down.
There is a one-time-only funding fee that can be rolled into the loan as well. Some VA buyers are eligible to exclude the funding fee. They would want to contact the VA or look at their COE (Certificate of Eligibility) to see if it says “EXCLUDED FROM FUNDING FEE” to see if that can be excluded.

If you’re struggling to find a move-in ready home that fits your budget, a VA renovation loan might be a helpful option since it allows you to purchase a home in need of a little TLC and gives you the funds to make necessary renovations.

Who Is Eligible?
Veterans or Active Duty Service Members are generally eligible for a VA loan if they’ve served 90 consecutive days of active service during wartime or 181 days during peacetime.
The minimum service requirement for National Guard or Reserve members is 6 years.
>>Qualifying surviving spouses are also eligible for VA Loan products<<

Lender Credit Standards:
The VA doesn’t set a minimum credit score limit. However, most lenders require 620+ credit scores for VA loans.
Some lenders can typically work with credit scores as low as 600.
You will also be required to show usable income that meets the government regulation requirements and the debt-to-income ratio standards for an Approved/Eligible finding through the Automated Underwriting System.
The exact total amount you’ll be able to borrow will depend on the home’s sale price plus the cost of your proposed renovations, or the estimated value of the home once those renovations have been completed – you’ll be able to borrow the lesser of these two amounts.
A VA appraiser will determine the property’s as-completed value.

Property Eligibility:
VA loans are there to be used to purchase a primary residence. However, there are certain times when a VA loan can be used to help eligible service members purchase a second home.
You can also use your VA loan to purchase a multi-unit property with up to four units.
You’d be required to make the home your primary residence for a year.
After that, you’d be free to purchase another multiunit home and repeat the process again.
This would all be based on the Entitlement from the VA and what you have available to use from that.

VA Renovation Loan Requirements:
It must be intended as a primary residence.
VA Appraisal & MPR’s must be met upon completion (MPR’s = Minimum Property Requirements).
Updates must improve livability, use, and/or safety.
Luxury upgrades are not allowed with a VA Reno loan.
Example = a pool
Builders must operate under a valid VA Builder Identification Number.
All construction must be completed within 120 days of your closing date.
Renovations (including the 115% increase total over the contractor estimate) must be less than $50,000.
So, if you wanted to buy a house for $200,000 and you want to use the maximum of $50,000 for repairs, the most you’d be able to borrow is $250,000.
None of the repairs can be “structural” (meaning changes to the bones of the body of the home) unless they are things that are under the ADA Guidelines or “ADAAG Standards.”
Example: A doorway could be widened to fit a Veteran’s wheelchair through it for wheelchair accessibility.
Want a copy of the ADA Guidelines? Just let us know and I will email you them.
The contractor doing the repairs will get access to their first draw of funds for repairs after 50% of the repairs have been completed.

Choosing A Contractor:
The VA doesn’t approve contractors, but it does require your contractor to register with their nearest VA Regional Center to obtain a VA builder ID number.
You can get information on VA-registered contractors in your area.
For your contract to get a VA Builder ID Number, they will have to submit:
Builder information and certification on builder’s letterhead
VA Form 26-421 (Equal Employment Opportunity Certification)
VA Form 8791 (VA Affirmative Marketing Certification)
A copy of the builder’s license, if required by a state or local authority
The contractor will determine how much your proposed repairs and improvements will cost.
The VA does NOT permit home buyers to complete the renovations themselves.
The Lender will disburse funds to the Contractor. The buyer does not get the funds to disburse or use.