Va Rehab Loans For Refinances
If you want to make renovations to a property you already own, the process is similar to a purchase. However, the acquisition cost is calculated by adding the existing loan amount to the renovation costs, contingency reserve, and fees.
When the renovations are completed, the original mortgage is replaced by a new loan, that includes renovation costs.
But just as is the case with a purchase, the lender must use the lower of the acquisition cost or the as-completed value. So if the total acquisition cost is $150,000, but the as-completed value is $140,000, the maximum base loan amount will be $140,000. The remaining $10,000 in renovation costs will come out of your pocket.
Which Renovation Loan Is Right For You
Depending on what you want to do with the property and how good your credit is, one of these renovation loans might be a better fit for you than the others.
If any of the following reasons apply to your situation, consider taking out the respective loan.
|Fannie Mae HomeStyle Renovation loan or Freddie Mac CHOICERenovation loan
|FHA 203 limited loan
|FHA 203 standard loan
Amy Fontinelle is a mortgage and credit card authority and a contributor to Credible. Her work has appeared in Forbes Advisor, The Motley Fool, Investopedia, International Business Times, MassMutual, and more.
Va Rehab Loan Appraisals
Most mortgage lenders will require an appraisal to be performed on a property for just about any type of mortgage, including VA loans. But the necessary appraisals for VA rehab loans are more specialized.
The lender will order an appraisal on the property, to be performed by a VA appraiser.
The appraiser will provide a notice of valuation , that will estimate both the acquisition cost of the property and the as-completed value. Well go into the as-completed value in the next section, but concentrate on acquisition cost here.
The acquisition cost is the actual final price youll pay for the property, once all costs are factored in. Those costs include:
The property will be considered 100% complete when a;VA appraiser provides a final inspection.
The appraiser certifies all VA minimum property requirements have been met, and the house has been fully improved consistent with the original plans, specifications, approved change orders, and the as-completed value of the appraisal has been maintained.
You May Like: What Kind Of Loan For Rental Property
You Must Use A Licensed Insured Builder
Its important to note that you cant use one of these loans for a self-build project, even if you are a skilled amateur. According to the VA:
you will need a licensed, insured builder that is willing to submit documentation to become an approved builder. The VA program does not allow for owner/builders. While the VA only requires that the builder be registered to participate in the program, each lender can require the builder to go through an approval process.
Your builder will also have to take on more financial responsibilities than is normal. So you need to make sure the builders you speak to know what theyre getting into before you waste too much time. Best to show them the VAs brief overview of whats involved.
How To Choose The Best Home Renovation Loan
Setting up your new home or redecorating an old one can be as daunting a task as it is exciting. Especially when it comes to managing finances. Bigger tasks such as renovation, remodelling, complete furnishing, require higher funds. Also, you can use it to enhance your home in many ways such as tiling and flooring, internal & external plaster and painting, etc. However, this should not cause any hindrance when setting up your dream house.
However, before taking a decision, make sure you consider some essential factors:
- Need;- First and foremost is deciding what you will use the loan amount for. List down all the activities and purchases you wish you carry out for your house. This will help you set a fixed budget.
- Eligibility;- Once you have decided on a budget, you should check the loan amount you are eligible for. Depending on your credit score, you can also get suitable interest rates.
- Interest rates;- Apart from your credit score, the loan amount as well as loan tenure also makes a difference to your interest rate. You can also opt for a fixed or floating interest rate, depending on your capability of repayment.
- Fee; Along with the interest rates, also compare the fee being charged. Different repayment plans have different fee. A high fee can significantly increase the repayment amount.
A;Personal Loan;is an often-considered option for home renovation.
Check your eligibility and apply now for an instant;loan;with HDFC Bank Personal Loan!
Don’t Miss: How To Calculate Mortgage Loan To Value
Downsides To Va Rehab Loans
Since VA rehab/renovation loans come with all the perks of traditional VA loans , there arent many downsides. The biggest one is that these loans cant cover major structural repairs or, on the flip side, more luxurious updates .
VA renovation loans are also limited in what properties they can be used on. Like traditional VA loans, they cant be used on rental properties or properties you intend to fix-and-flip. For these projects, a HomeStyle loan may be a better option.
What Are The Advantages
;The main advantages of a VA renovation loan is that homeowners can greatly improve the way that their home looks and functions. Although repairs and improvements have to be for VA eligibility purposes, they can still provide a significant renovation for a home in need. Things such as roof repairs or flooring replacements can really improve the homes overall functionality and safety.
Another advantage is the ease of terms that a VA renovation loan provides. Although it will be a second loan, it does get lumped into the original purchase loan which is advantageous to someone looking to avoid a second mortgage or a cash-out refinance!
Recommended Reading: What Is The Maximum Va Loan Entitlement
Renovation Refinance For Home Improvements
A cash-out refinance is a good option for many homeowners, but it isnt the only one. You can also use a renovation refinance loan to pay for home improvements.
A renovation refinance has similar benefits. You can get cash for a home remodel or upgrade, and the rate on a renovation refinance is often far lower than a credit card or personal loan.
There are a few key differences between a renovation refinance and a cash-out refinance, though.;
For example, with a renovation refinance your homes estimated value after improvements determines the borrowed amount. So this type of loan might be an option when you dont already have enough equity built up to borrow from.
Also, you dont receive a lump sum of cash at closing with a renovation refinance. Your lender places funds in a separate escrow account and then pays the contractor at different stages of the remodel.
Your lender will also request a detailed renovation plan to estimate the homes value after improvements.
Va Rehab Loan Eligibility
To qualify for a VA rehab loan, you must meet several criteria.
First, you need a valid Certificate of Eligibility, which proves youre eligible for a home loan backed by the Department of Veterans Affairs.
As Brown explains, eligibility typically means you meet one of the following criteria:
- Served at least 90 consecutive active duty service days during wartime
- Served at least 181 activeduty service days during peacetime
- Served at least six service years in the National Guard
- Or be a spouse of a service member who died from a servicerelated disability or in the line of duty
In addition to your VA loan eligibility, there are certain requirements for the home buyer and the property.
Bruce Ailion, a real estate investor, attorney, and Realtor, explains:
- The home must be used as your primary residence
- You cannot borrow more than the repaired value of the home
- Any contractors you choose must be approved by the VA
- And you typically need a 660 or better credit score
Lenders will also want to see reliable income and tolerable debt levels.
Not all repairs are covered
Additionally, its important to note that there are limits on the sorts of repairs you can do with a VA renovation loan.
You are allowed to improve the existing structure, says Ailion, $2uch as by adding a new roof, upgrading or replacing the plumbing or electric, installing new carpeting, improving accessibility, and making health, safety, and livability improvements to the home.
Recommended Reading: Is My Home Loan Secured
Benefits Of The Va Renovation Loan
While traditional VA home loans simply finance the purchase or general refinancing of a home, a VA renovation loan has broader applicability, says Wayne Brown, former Captain for the United States Air Force and director of business development at Pensioned American Retirement Company.
Thats because a portion of the loan includes the expenses associated with renovating the property, he explains.
$2A renovation loans can be used for refinancing purposes, but in this case they essentially serve as a supplemental loan to repair your property in addition to traditional VA refinancing.
No down payment or mortgage insurance is required. And eligible borrowers can get a very low interest rate.
John Gluch, Realtor and founder of Gluch Group, says the benefits of a VA renovation loan are multiple.
For one, no down payment or mortgage insurance is required. And eligible borrowers can get a very low mortgage rate.
Also, the borrower only has to worry about a single VA loan for their property instead of a purchase mortgage loan and a separate rehab loan, notes Gluch.
This allows for one convenient monthly payment and can be easier for budgeting and forecasting.
Home Improvements That Can Be Added To Your Va Loan
The VA home loan program offers eligible borrowers a multitude of advantages. No money down, no private mortgage insurance required, accessible refinancing options, no established minimum credit scores, and service-related disability options, anchor the loans appeal. These benefits are the driving force behind the loans expanded popularity in recent years.
Many borrowers however do not realize the full scope of what the VA loan can be used for. Did you know that you can get government funds for energy efficient home improvement? Special government home improvement mortgages, tax credits and rebates are available.
A VA Energy Efficient Mortgage is used to support a multitude of improvements rooted in energy efficiency. Examples of improvements that can be conducted using this type of VA mortgage include solar powered cooling and heating systems, caulking and insulation, remodeled doors and storm windows as well as specific thermostats.
Are you interested in the United States government funding your home improvement? The 48 tips listed below will save you money, remember, Uncle Sam picks up the tab!
ENERGY Star appliances are certified by the government to reduce energy consumption when compared to non-ENERGY Star products. Replacing older appliances will reduce your electric bill by hundreds of dollars per year.
In your home office:
Don’t Miss: Is Jumbo Loan Rates Higher
Benefits Of Va Renovation Loans
So how do these VA loans help you? The high-level answer is that with a VA renovation loan , you are able to borrow not only the price of the home but also extra money for any improvements, repairs or alterations needed to improve the house and make it livable. And the best part? Its still only a single mortgage, so you only have to deal with one VA loan payment. It incorporates the improvements right into the value of the home. Work is then able to start after you close on the loan. This is a fantastic option if you want to use your VA earned benefit to purchase or refinance a home that needs a little TLC.
Its important to note that renovation loans are not used to remodel your entire home or to make major renovations. The purpose of this benefit is to ensure your new home meets the standard for VA financing. You can find these standards listed in detail as part of VA Pamphlet 26-7, Chapter 12. In short, the house must meet all current building codes, Federal regulations and HUD requirements. So, it can not be used to put in a swimming pools, an outdoor Jacuzzi, or even something major such as a septic system. But you can repair that leaky roof, replace worn floors, fix a cracked foundation or install energy-efficient upgrades.
How We Make Money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout lifes financial journey.
Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
Were transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.
Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.
Read Also: Are Va Loan Interest Rates Lower
Va Energy Efficient Mortgages
Energy efficient mortgages are loans that let VA mortgage homebuyers cover the cost of energy efficient improvements for their home. In most cases, the VA allows qualified borrowers to raise the VA loan limit up to $6,000 to finance energy efficient upgrades if you want more than that, youll need to secure a Certificate of Commitment from the VA.
Some acceptable energy efficient improvements include solar heating and cooling systems, additional insulation , storm windows and/or doors, furnace efficiency modifications, and heat pumps.
4 Important Aspects Of VA Energy Efficient Mortgages:
Income verification. For EEMs under $3,000, the VA tells lenders that the cost will be offset by decreases in utility bills. But, for projects between $3,000 and $6,000, the lender is responsible for determining if the extra costs are worth it and that you have the income to cover the increased payment.
VA contractor not required. If you are a handy person, then you have the option of doing the repairs yourself the EEM financing would cover just the cost of materials.
Upfront funding fee. All VA borrowers pay 1.25% to 3.3% in funding fees when they first take out a VA mortgage. The funds borrowed for EEMs are subject to this upfront funding fee.
You must currently have a VA mortgage.EEMS are not freestanding loans. To receive one, you must be purchasing or financing your residence with another VA home loan.
Fha 203 Standard Loan
An FHA 203 standard loan lets you borrow up to 110% of the homes after-renovation value, and you can use it to make structural repairs.
In fact, you can tear a home down to its foundation and rebuild it. You can also make less-drastic structural changes such as home additions.
The requirement to use a 203 consultant with this loan adds an expense that other renovation loans dont entail. You also have to refinance at least $5,000 worth of repairs, and you still cant make renovations the FHA considers luxuries, like installing a new outdoor fire pit.
- Min. credit score: 500 with 10% down, 580 with 3.5% down
- Min. down payment: 3.5%
- Residence types: Principal residence ; condos allowed
- Allowable improvements: Structural and nonstructural repairs and improvements
You May Like: Can You Get An Fha Loan With No Money Down
The Bottom Line: Va Renovation Loans Can Be A Useful Option But Are Often Difficult To Obtain
VA loans come with many great benefits, and a VA renovation loan can be extremely useful to vets or current servicemembers looking to make repairs on their current or future home. However, it can be tricky to find a lender that offers them.
Fortunately, if youre considering buying a home that needs renovating, there are a variety of options available to you. The important thing is to search around and find the loan that best suits your needs.
Get approved to refinance.