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 We have heard many of our clients do not want to purchase a property based on outdated items such as carpeting or appliances.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.
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
What type of Renovations are allowed?vThe VA renovation mortgage program can only be used for minor alterations and cosmetic repairs. This loan product may not be used for structural repairs. Any Improvement to existing structures must comply with the VA’s minimum property requirements (MPR).
Below are a few examples:
- 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)
The list goes on and on. Depending on the scope of work you may need to utilize a HUD consultant for the renovations. As you can see you can add quite a bit of value as well as make your house a home with the renovations allowed.
Scope Of Work On VA Renovation Loans
As stated above, the VA renovation loan is meant for minor cosmetic repairs and minor alterations. the VA renovation mortgage is not meant for major Renovations or alterations. A major renovation or alteration includes 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
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
Types Of Properties Eligible For VA Renovation Mortgage
What type of properties is eligible for this product?
- The VA renovation mortgage is eligible on one- and two-unit primary residences and select manufactured homes
- This mortgage product name
- Be used for 3 to 4-unit properties, mixed-use properties, condos, or mobile homes
- It is important to note that a home that has not been completed may not use this loan to finish construction
Certificate Of Housing Occupancy
Evidence of completion with a certificate of occupancy must be available. As mentioned above, depending on the scope of work you may need a HUD consultant. This is also required with an FHA 203k loan. When utilizing the VA renovation mortgage, if the scope of work is higher than $50,000 we must utilize a HUD consultant. The consultant will provide a completed W9, consultant work write-up/ scope of work (SOR), HUD consultant identity of Interest form.
VA Renovation Mortgage Process
Time periods associated with VA renovation loans:
Typically, these loans take 45 days at a minimum to complete. This is because there are a lot of moving parts that are out of your control. Whether or not you use a HUD consultant, there is a lot of coordination with the contractors. Once the mortgage closes, all renovation work must begin within 30 days. the work must not cease prior to completion and may not have more than 30 days between renovations. As stated above, all work must be completed within a hundred and twenty days or 4 months.
General Contractor Requirements
Just like the FHA 203k and Homestyle renovation by Fannie Mae, you cannot have an identity or conflict of interest with the contractor. All transactions must be an arm’s length transaction. Family members of the veteran are not eligible, and the borrower may not be employed by the contractor. This is nothing new to 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.
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. For any questions regarding this VA loan or any VA loan in general, please reach out to Mike Gracz on 630-659-7644 or text us for a faster response. Or send an email to email@example.com. We are available 7 days a week to answer any questions you may have.
March 5, 2022 - 6 min read