In this blog, we will cover and discuss VA renovation mortgage loans. Many of our veterans do not know they may utilize a VA loan to complete renovations to a property. This can be done when purchasing a home or refinancing their current primary residence. This product is similar to The FHA 203k or Fannie Mae Homestyle mortgage, but it allows you to utilize your VA benefits. You served our country, let the team at Gustan Cho Associates serve you. In this blog, we will detail how the VA renovation loan works and who the loan is intended for.

Benefits Of Utilizing VA Renovation Mortgage

Why utilize a VA Renovation Mortgage? When home shopping many times you will nitpick minor issues with the property. We have heard many of our clients do not want to purchase a property based on outdated items such as carpeting or appliances. This is a great time to utilize a VA renovation mortgage. The home may need minor improvements or just a little updating, a little TLC goes a long way.

This is a perfect loan program if buying a foreclosure or short sale, as sometimes those properties are a little beat up. If you already live in your home and would like to utilize your VA benefits to improve your home instead of moving, you can do that as well.  Speak With Our Loan Officer for VA Loans

Can Renovations be Loans?

Yes, renovations can be financed with a VA Home Loan through the VA Renovation Mortgage program. This option allows veterans and active-duty service members to purchase a home. It includes the cost of renovations or improvements to their existing homes. To be eligible, you must meet the basic requirements for a VA loan, including possessing a valid Certificate of Eligibility (COE) and fulfilling the required service criteria.

The loan amount can include both the purchase price of the home and the renovation costs, provided it does not exceed the VA loan limits for your area.

The renovations must be approved by both the lender and the VA, with common projects including roof repairs, flooring, kitchen and bathroom updates, and energy-efficient upgrades. All work must be done by a licensed and insured contractor approved by the lender and the VA. Additionally, the property must be appraised before and after the renovations to ensure the value supports the loan amount.

The VA Renovation Mortgage is a flexible option within the VA Home Loans program. It is designed to help veterans and active-duty service members improve their primary residences.

VA Renovation Mortgage Eligibility Requirements And Guidelines

What are the qualifications to utilize the VA renovation mortgage? A minimum qualifying credit score of 620 is required. If your credit score is between 620 and 659, you must have at least two credit bureaus reporting your scores. If your credit score is above 660. You only need one reporting credit score to get the loan completed.

VA Manual Underwriting on Renovation Loans

This renovation loan is one of the few Specialty Products that allow manual underwriting. Even if your AUS findings are Refer, we can still complete this loan. For more information on AUS findings, see our AUS BLOG. This program is offered in many terms, 10-year, 15-year, 20-year, 25-year, and 30-year fixed mortgage products. There are no adjustable rates available for this program. Once again, this program is available for purchase or refinances.

Types Of Renovations Allowed

The VA Renovation Mortgage program, part of the VA Home Loans, allows for minor alterations and cosmetic repairs but cannot be used for structural repairs. All improvements must comply with the VA’s Minimum Property Requirements (MPR). Here are some examples of allowable renovations:

• Eliminating any health and safety hazards
• Connecting water supply to public water and sewer systems
• Repairing any Electrical, Plumbing, Heating, and air conditioning systems
• Making changes for improved functions and modernization
• Eliminating obsolescence (removing nonfunctional outdated appliances)
  Repairing or installing a new roof
• This is one way to increase the value of your property instantly
• Keep in mind the Structural Integrity of the dwelling cannot be impacted by the roof work
• Adding or replacing siding, gutters, and downspouts
• Making energy conservation improvements
• Making the vehicle accessible for persons with disabilities
• Installing or repairing fences, walkways, and driveways
• Installing new appliances
• Refrigerator, cooktop, oven, dishwasher, built-in microwave oven, washer/dryer
• Installing smoke or carbon monoxide detectors
• Installing, replacing, or repairing existing decks, patios, or porches
• Removal of lead-based paint
• Repairing or removing an inground swimming pool (MAY NOT ADD A NEW POOL)

Depending on the scope of work, you may need to hire a HUD consultant for the renovations. The VA Renovation Mortgage program can substantially increase property value and enhance the comfort of your residence.

Scope Of Work On VA Renovation Loans

As stated above, the VA Renovation Mortgage is intended for minor cosmetic repairs and alterations. The VA Renovation Mortgage is not designed for major renovations or significant alterations. Major renovations or alterations include the following:

• Structural modifications
• Repair or removal of any oil tank
• Any need repair for a private water system -(WELLS)
• Any repair or installation of the private waste management system (SEPTIC, LAGOON, CESSPOOLS, PITS)
• Mold remediation
• Landscaping and site improvements
• Purchasing an existing structure and moving it onto New Foundation
• Any repair that takes more than 4 months to complete, including the time to receive permits
• Any repair that prevents the borrower from occupying the property for more than 15 days during renovation

These restrictions ensure that VA Home Loans, specifically the VA Renovation Mortgage, are used for suitable and manageable projects that do not excessively disrupt the living conditions or the home’s structural integrity. Click here to apply for VA Renovation Loans

Types Of Improvements And Renovations Prohibited With VA Renovation Loans

Just like the FHA 203k loan and the Fannie Mae Homestyle loan, the VA renovation mortgage does not allow recreational or luxury improvements.

Examples of recreation or luxury improvements can be:

• Adding a swimming pool or bathhouse
• Add an exterior hot tub, spa, whirlpool bath, or sauna
• Tennis courts
• Adding BBQ Pits, or outdoor fireplaces
• Satellite dishes
• Gazebos

Types Of Properties Eligible For VA Renovation Mortgage

The VA Renovation Mortgage, a product under the VA Home Loans program, is eligible for one- and two-unit primary residences and select manufactured homes. It cannot be used for three- to four-unit properties, mixed-use properties, condos, or mobile homes. Additionally, this loan cannot be used to construct an unfinished home.

Certificate Of Housing Occupancy 

When utilizing a VA Renovation Mortgage, evidence of completion with a certificate of occupancy must be available. For various project sizes, the services of a HUD consultant may be necessary, similar to the requirements for securing an FHA 203k loan. Specifically, with VA Home Loans, if the renovation costs exceed $50,000, a HUD consultant is required. The consultant will provide a completed W9, a consultant work write-up/scope of work (SOR), and a HUD consultant identity of interest form.

VA Renovation Mortgage Process 

VA Renovation Mortgage, part of the VA Home Loans program, typically takes a minimum of 45 days to complete due to the many moving parts involved. Coordination with contractors, whether or not you use a HUD consultant, can affect the timeline. Once the mortgage closes, renovation work must begin within 30 days and should have at most 30 days between phases. All renovation work must be completed within 120 days or four months to comply with the program requirements.

General Contractor Requirements

Similar to the FHA 203k and HomeStyle Renovation loans offered by Fannie Mae, the VA Renovation Mortgage, as part of the VA Home Loans program, mandates that there are no conflicts of interest or identity issues with the contractor. All transactions must be at arm’s length, meaning the veteran’s family members cannot be eligible, and the borrower cannot be employed by the contractor. This requirement is standard for the VA Renovation Mortgage.

Choosing General Contractor For VA Renovation Loan

You will select a general contractor who is already registered with the VA. We must obtain signed and dated estimates or bids from the borrower and the general contractor. It is strongly recommended to get more than one estimate, but it is not required. The contractor must have sufficient insurance and licenses to complete the scope of work.

On the scope of work, it must specifically state “no structural work is being performed”. Unlike the FHA 203k loan, mortgage payments cannot be included in the loan. Meaning once the loan closes, you will start making your payments whether you occupy the house or not.

VA Renovation Mortgage Appraisal Process

 How does the appraisal process work? The appraisal will be conducted just like every other VA mortgage. the appraiser will provide in “after improved value” and we’ll make the appraisal subject to those repairs. The value is based on the hypothetical completion of all renovation. The appraiser will have access to the contractor’s proposal and estimates. The renovations will be considered in the “after improved value”. Once all renovations are complete, the appraiser will go back out to the property and confirm the completion. Click here to start your VA Renovation mortgage Appraisal Process

VA Loan Limits

The VA renovation mortgage will be based on the after value of the repair. It is important to remember that value must stay under the maximum loan limit but VA loans no longer have a maximum loan limit. Most of the country has a loan limit of $647,200 for a single-unit property. 

However, VA loans no longer has a maximum loan limit cap. That means the cost of the home plus all Renovations need to be under that number before you are required to utilize a down payment.

For more information on VA mortgages above the conforming loan limit please see our VA HIGH BALANCE BLOG. This loan program is new to our ever-growing mortgage product line. Gustan Cho Associates is excited to offer this loan to those who served our country.

FAQs: VA Renovation Mortgage Lending Guidelines On VA Loans

• 1. What is a VA Renovation Mortgage? The VA Renovation Mortgage program within VA Home Loans enables veterans and active-duty service members to finance a home’s buying price and renovation expenses. This option is available for purchasing a new home or refinancing an existing primary residence.

• 2. What are the benefits of utilizing a VA Renovation Mortgage? The VA Renovation Mortgage allows you to address minor issues and outdated items in a property, making it ideal for homes that need minor improvements or updating. It’s also beneficial for purchasing foreclosures or short sales, which may require some repairs. Additionally, it can be used to improve your current home instead of moving.

• 3. Can renovations be included in a VA Home Loan? Yes, renovations can be financed with a VA Home Loan through the VA Renovation Mortgage program. This allows eligible veterans and active-duty service members to include the cost of renovations in their mortgage, provided the total loan amount does not exceed the VA loan limits for their area.

• 4. What types of renovations are allowed with a VA Renovation Mortgage? The program allows minor alterations and cosmetic repairs, including roof, flooring, kitchen and bathroom updates, energy-efficient upgrades, and more. All work must be done by a licensed and insured contractor approved by the lender and the VA.

• 5. What are the eligibility requirements for a VA Renovation Mortgage? To qualify, you must satisfy the basic VA loan eligibility requirements, which involve holding a valid Certificate of Eligibility (COE) and fulfilling the service criteria. Normally, a minimum credit score of 620 is required, and the home improvements must adhere to the VA’s Minimum Property Requirements (MPR).

• 6. Can the VA Renovation Mortgage be manually underwritten? Yes, it is one of the few specialty products that allows manual underwriting, even if the Automated Underwriting System (AUS) findings are unfavorable.

• 7. What types of properties are eligible for a VA Renovation Mortgage? The VA Renovation Mortgage is eligible for one- and two-unit primary residences and select manufactured homes. It cannot be used for three- to four-unit properties, mixed-use properties, condos, or mobile homes.

• 8. What is the VA Renovation Mortgage process? The process typically takes a minimum of 45 days due to coordination with contractors and the potential involvement of a HUD consultant. Renovation work must begin within 30 days of closing and be completed within 120 days.

• 9. Are there restrictions on the types of improvements allowed? The VA Renovation Mortgage cannot be used for structural repairs, recreational, or luxury improvements such as adding a swimming pool, hot tub, or tennis courts. It focuses on minor repairs and improvements that enhance the property’s functionality and livability.

If you have any questions about VA Renovation Mortgage or you need to qualify for VA loans with a lender with no overlays, please contact us at 800-900-8569 . Text us for a faster response. Or email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

This blog about VA Renovation Mortgage Lending Guidelines On VA Loans was updated on June 13th, 2024.