Zero Down & Room to Improve with the VA Renovation Loan

Does a zero down payment loan option plus extra money to fix up your new home sound too good to be true? It’s not! With a VA Renovation Loan you can create your dream home.  

Using a VA renovation loan, qualifying Veterans can can buy a home and roll in extra money to make improvements without giving up any of the benefits of a regular VA loan. You could still get a great rate with options for no down payment, and no mortgage insurance.

Read on to learn more about this exciting program…

Eligible properties

A VA Renovation loan can be used to make improvements to a single family home, townhome, condo or duplex. Condos must be in VA approved projects, but if you have your eye on a condo that is not approved, don’t give up. Guaranteed Rate can secure approval on eligible projects — at no extra cost to you.

Eligible improvements

The minimum renovation cost is $3000 and repairs may not exceed $35,000.

The home you buy must be habitable at the time of closing. This means it must be free of major structural, electrical or plumbing issues. The improvements you are allowed to make include:

• Finishing or remodeling a basement
• Interior and/or exterior painting
• Repairing or replacing windows and doors
• Repairing or replacing siding
• Repairing or replacing a roof
• Ineligible repairs

Some projects are in eligible, including:  

• Major plumbing or electrical work
• Structural modifications (additions, tear downs)
• Repair, removal or remediation of oil tanks
• Repairing or replacing a well or private water system
• Repairing or replacing a septic system
• Mold remediation
• Any repair that will take more than 4 months to complete

Other ineligible repairs include:

• Landscaping and site improvements
• Tree removal or surgery
• Luxury or recreational improvements like barbeque pits, swimming pools, sport courts or gazebos
• Moving a structure onto the site from another location

Contractor requirements

Renovation loans include a few extra steps and take a little extra time. The more you can do ahead of time, the better.  One thing you can do to get ahead is to select the contractor you’ll be using right away. Finding your contractor before you find the perfect home will set you up for success later.

If your contractor doesn’t already have one, they will need to obtain a VA Builder ID. This simple process includes sending three forms in to the VA. The forms and instructions are available here.  

Process — from Offer to Closing

Get a Bid

As soon as you get your offer accepted, start working with your contractor on the list of improvements to be made. While you complete home inspections, your contractor can work on a bid for the improvements. Remember the work being done must cost at least $3,000 but no more than $35,000.

Appraisal

Once your bid is complete, it’s time to request your appraisal. The VA assigns an appraiser to your loan. The appraiser determines an “as-is” value and an “as-improved” value of the home you are buying.  The most you’ll be allowed to finance is lesser of 100% of the appraised value or 100% of your “acquisition cost”. The acquisition cost is calculated by adding your renovation costs to the as-is value provided by the appraiser.

Consultant Report

The bid will also be reviewed by a third party consultant. This consultant will verify that all repairs necessary to satisfy VA standards are being made. They will also confirm the repairs are within the allowed scope of the program and that the costs and timeline outlined in your contractor’s bid are reasonable.

Closing

Upon receipt of your appraisal, your loan goes through underwriting review and closing documents are sent to your closing agent, just like any other VA loan. At the time of closing your seller is paid the agreed-upon price. The extra money for renovations are “escrowed” (held) by your lender.

Your home is yours…now it’s time to make those improvements!

Process — Renovations

Draws

As soon as you get your keys your contract can begin making improvements. Of course they’ll want to get paid as work progresses. Money is released to your contractor as work is completed. Make sure your contractor knows this, as some contractors may want money up front for materials that the loan will not provide.

When the contractor is ready for payment, you and the contractor will submit a draw request. Draws are paid on the percentage of work completed on each part of the work being done. The bank’s consultant will make a visit to your home to verify what’s been done and sign off on the requested draw.

Say, for example, your contractor bid $8000 to replace your roof and $10,000 to remodel your kitchen. If they request a draw when 50% of the roof is complete and 20% of the kitchen remodel is complete, they’ll receive a $6000 draw ($4000 for 50% of the roof and $2000 for 20% of the kitchen).

Up to 3 draws are allowed.

Timing

Any work that requires you to move out must be completed within 15 days. All of the work to your home must be completed within 4 months of closing. For projects that are going to take a few months, make sure you and your contractor plan draw requests strategically.  

Contingency Fund

No matter how perfectly you and your contractor plan, sometimes surprises come up during the course of construction. You might find dry rot when you remove an old shower surround or wiring that should be updated when you open a wall.

With a VA Renovation Loan, you don’t need to lose sleep over these potential surprises. Your loan will include a contingency fund equal to 15% of the repair costs quoted by your contractor.  This amount is included in repair escrow and can be accessed to cover these unforeseen expenses.

Once your project is beyond the point that any surprises could come up, you can request  change order to use unspent contingency funds on upgrades. You may be able to buy nicer light fixtures or countertops or upgrade your flooring or appliances. Any contingency funds you don’t spend on necessary repairs or upgrades will be paid down against the principal of your loan.

Turbo-charge your VA pre-approval

The VA home loan program is an amazing benefit. The VA Renovation loan helps Veterans overcome many of the most common challenges vets face when accessing the program.

• If all the homes in your price range need a little love, a VA renovation loan provides funds to fix up a fixer-upper.
• If you find a home with the perfect floor plan but it’s dated and needs a facelift, a VA renovation loan can get rid of that old shag rug and wallpaper with something new and modern.
• If your home inspection turns up repairs the seller won’t agree to make, a VA renovation loan lets you close and make the repairs later.
• If a seller is reluctant to accept your offer because they are worried the VA appraiser will require repairs, you can write an “as-is” offer using a VA renovation loan.

Keep your options open

Even if you’re not sure you want a fixer upper, keep your options open. Guaranteed Rate makes it easy to get pre-approved for a regular VA home loan and a VA Renovation at the same time. With both options available, you’ll have the flexibility you need to write an appropriate offer when the right home comes along.

Call today to get started!

If you’re a Veteran thinking about buying a home, it’s easy to get started.

Call, text or email today to get started: juleef@rate.com or 503-799-3711. Or apply online at www.rate.com/juleef.

I look forward to hearing from you!

Guaranteed Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency.

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, and terms are subject to change. Contact Guaranteed Rate for current rates and for more information.

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate, Inc. Guaranteed Rate, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.

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