Are you planning to make repairs or update your home? Here’s what you need to know about your VA home improvement loan options.
As a VA borrower, you have several options for financing a remodel or renovation project. From VA refinances to rehab and renovation loans, these products can help you fund home improvements, as well as cover other costs you might be facing, too, like your child’s college tuition, sudden medical bills, or other expenses.
There are quite a few VA loans and refinance products that can help you pay for home improvements. Sometimes called VA renovation loans or VA rehab loans, these are mortgage products geared toward homeowners fixing up a home — not those just purchasing one.
If you fall under this umbrella, you have five options to choose from:
Cash-out refinances are arguably the best option for covering home renovations. With these loans, you simply replace your existing VA loan with a new, larger one. The new loan pays off your old one, and you get the difference between the two balances back in cash. You can then use those funds to pay for your home updates and repairs.
The big benefit of this strategy is that it won’t add an extra payment (as some of the other options will). You can also use the money toward any home update — large-scale or even structural renovations. And additional funds? They can go to non-home-related costs as well.
To qualify for a VA cash-out refinance, you’ll need to have equity in your property — meaning your home is worth more than your current loan balance, and it will also need to be your primary residence. As with all VA loans, you’ll need your Certificate of Eligibility, too.
In most cases, the VA cash-out refinance is your best option for funding home improvements, simply because of the flexibility it provides. Want to learn more about VA cash-out refinances or apply for one today? We can help.
The VA also has a home improvement loan, much like the FHA 203(k) mortgage. The VA home improvement loan — also known as the VA rehab and renovation loan — is specifically designed for renovating your property (meaning you can’t use the funds for other expenses).
You can use these loans to both purchase a home and renovate it at the same time or, if you already own a home, as a refinance, to renovate the property you already live in. To use a VA home improvement loan, you’ll need to be making minor updates and repairs that enhance your home’s livability, safety, or accessibility.
Again, these can only be used on your primary residence. Loan terms come in 10-, 15-, 20-, 25-, and 30-year options, and there is no down payment required.
If you’re looking to make upgrades that improve your home’s efficiency or its impact on the environment, a VA Energy Efficient Mortgage — or VA EEM, could be a smart choice.
With VA Energy Efficient Mortgages, you can fund improvements to your home’s insulation, doors, windows, HVAC system, heat pumps, roof, siding, and even minor items like caulking and weather stripping. Improvements need to be permanent fixtures of the property (so not appliances or other removable units.)
VA EEMs can also be used in tandem with a VA Interest Rate Reduction Refinance Loan (VA IRRRL), also called the streamline refinance. This can be a great way for VA borrowers to both reduce their rate and monthly payment, while also covering the costs of certain upgrades and repairs.
The VA also has supplemental loans to improve basic living conditions in your home. VA supplemental loans are available either as refinance (replacing your current VA loan with a new one) or as a second mortgage — a loan you’d have in addition to your existing one. In the latter scenario, you’d have two monthly payments instead of one.
Your final option is a home equity loan or a home equity line of credit (HELOC). These are loans you’d take out in addition to your current mortgage, and they are not VA-backed. With these options, you’d have two monthly payments rather than one (as with a refinance). You’d get these from any major bank or lender.
If you don’t have equity in your home, a VA cash-out refinance won’t be an option. Instead, you can look to FHA Title I, FHA 203(k), VA renovation, and supplemental VA loans.
In all four cases, you do not need established equity in your home and can apply for the loan before or even soon after buying your home. You can also fully finance your renovation costs.
To apply for a VA home improvement loan, you’ll first need to work with a VA-approved lender, and as with all VA mortgages, you will need your COE — or Certificate of Eligibility — from the VA. You can get this through the eBenefits portal, or your lender can pull the document for you.
Beyond these items, you will also need to meet the following eligibility requirements:
VA Home Improvement Loan Requirements
● The repairs you’re making must be minor or cosmetic in nature (nothing structural).
● All construction must be completed within four months of closing on your loan.
● You can use only one general contractor. They must be registered with the VA and carry sufficient and current general liability insurance.
● You must meet lender credit requirements, which typically range from a 620-660 FICO score. If your loan amount exceeds the VA loan limits for your county, credit requirements may be more stringent.
If you have questions about VA home improvement loans or are ready to apply, get in touch today: