Differences between a VA renovation loan and a VA loan

To best understand the differences let’s first look at the similarities between the va Renovation Loan and the standard VA loan. A VA mortgage loan is referred to as a VA home loan but can cover several different VA loan types including the va renovation loan, va construction loan and va refinance loan. No va loan type requires mortgage insurance but all va loans require a monthly payment, va funding fee and va appraisal by a certified VA appraiser. Further, no down payment is required as a benefit of your va loan entitlement and the department of veterans affairs guarantees a portion of these loans from va lenders.

A VA home renovation loan and normal va loan still have the VA’s minimum property requirements. VA renovation loan lenders like Security America Mortgage provide va rehab loans and alternative products that could be best for your situation. VA renovation and VA rehab are essentially the same and both require a va approved contractor which just means that the Veterans affairs has registered the builder or the contractor. So, what are the differences between a va renovation loan and a va loan? I’ll discuss that more below.

One big difference in a traditional va loan and a va renovation loan is that the purchase price on the va renovation loan can include repairs and will be appraised for the upgraded completed value. Buying a fixer upper is easier with a va renovation loan if you want to try to get the repairs done as part of the loan and the seller isn’t willing to do them. VA financing for a regular va loan allows for work to get done before closing by the seller if they agree in the purchase contract.

A VA home renovation loan and normal va loan still have the VA’s minimum property requirements. VA renovation loan lenders that provide va rehab loans should do so with the ability to provide you with an alternative product if that’s best for your situation. VA renovation and VA rehab are essentially the same and both required a va approved contractor which just means that Veterans Affairs has registered the builder or the contractor.

The maximum timeframe for construction is 9 months with a va renovation loan. The Appraisal cannot be ordered prior to the Builder/Contractor obtaining a VA ID Number and that’s not necessary with a standard va loan.

How VA Rehab and Renovation Loans Work

You can use a renovation loan for a Purchase or refinance but if it’s a cash out refinance you must follow VA Circular 26-19-05 for NTB requirements. Loan-to-value calculations include the VA funding fee. If you have an existing mortgage there will be a seasoning requirement. The borrower must have made at least six consecutive monthly payments on the loan being refinanced. Texas Renovation refinance transactions are permitted but you can’t receive any cash back at closing and liabilities not secured by the subject property may not be paid with proceeds from the transaction.

VA Renovation Loan requirements 2023

Property types include 1 Unit Primary Residence (attached/detached), 2 Unit Primary Residence (attached/detached), and Manufactured Housing. Condominium Units are not permitted in 2023 for va renovation loans but there is an alternative for you. VA approved condominiums are on va.gov.

The Appraisal cannot be ordered prior to the Builder/Contractor VA ID Number being obtained. Appraisals must be ordered subject to repairs or alterations. Final Inspection must be completed by a VA appraiser once the property is 100% complete “As Completed” Property Condition Rating as determined by the Appraiser must be C1-C4. 

Repair costs and Total renovation cost includes required contingency and reinspection fees. Total renovation exceeding $200,000 require additional approval. There is no minimum rehabilitation cost.

 Ineligible repairs include Oil Tanks (repair, removal, remediation). Any repair/installation of private waste management systems (Lagoon, Cesspools, Pits, etc.) won’t be allowed and neither will significant repairs or installation of septic systems. Mold Remediation isn’t permitted either.

Purchasing an existing structure on another site and moving it to a new foundation isn’t allowed and you cannot take more than 9 months to complete a repair. Any repair that prevents the borrower from occupying the property for more than 15 days during the renovation period is considered an inelible request. Just like VA construction loans, one cannot make repairs, remodel or build a home themselves. No owner builder/Owner contractor or owner worker aka self-help is allowed.

If the utilities are off during the inspection, the Appraiser must ask to have them turned on and complete all requirements under Mechanical Components. However, if it is not feasible to have the utilities turned on, then a pressure test and electrical test is required and must be completed by an appropriately licensed professional. Most lenders don’t permit the renovation or construction of an Accessory Dwelling Unit (A.D.U.). If renovations are over $50,000 then an approved 203(k) HUD Consultant is needed.

How does a VA renovation loan work?

Simply apply with Security America Mortgage and we’ll educate you further on this affordable loan and whether it’s a home purchase with home improvements or not; we have the product for you. No mortgage insurance is required.

Differences Between a Traditional VA Loan and Rehab Loans

Traditional va loans don’t allow you to finance repairs into a purchase price with the appraisal taking in consideration the improvements. For example, if you use a traditional va home loan then you’ll need to get the seller to do rehab before closing out of their own pocket or you’ll have to pay for this out of your own funds after closing. A va renovation loan also known as a va rehab loan allows your va appraiser to appraise the home based on the improvements so this creates more borrowing power.

Eligibility requirements for VA renovation loans

• Security America Mortgage requires a 580 minimum qualifying credit score required for all qualifying borrowers.
  • 580-659: A minimum of 2 qualifying credit scores are required for all qualifying borrowers. Use the middle score if 3 credit scores or the lower of the two if 2 credit scores. The lowest representative score from all borrowers will be used for qualification purposes.
  • 660+: A minimum of 1 qualifying credit score is required for all required borrowers.
• Non-traditional credit not permitted; with the exception of CDE loans with an AUS Approve Eligible Recommendation.
• Significant Derogatory Credit (Bankruptcy, Foreclosure) waiting periods less than 2 yrs. from the resolution of the event to the application must be approved by the credit committee.

Allowed improvements with a VA rehab loan

Eligible repairs include structural alterations such case removing an interior load-bearing wall. Repairing some structural components of the roof is acceptable as well but adding a second story or changing the elevation is not permitted. Attached additions that expand the footprint of the home require a review by underwriting. Repair/installation of private water systems (Wells) and minor repairs to Septic systems are also allowed. Any recreational or luxury improvement requests will be reviewed for approval. It’s important to remember that the VA requires any alterations and repairs to be ordinarily found on similar properties of comparable value in the community. It’s important to note that the home must be habitable at the time of application

VA home improvement loan types

This is a grey area because several products could follow under home improvement financing. Acquisition cost, home purchase price, whether there is an existing loan, the loan amount, the down payment and other factors affect the classification. A purchase loan where your not trying to build repair costs into the loan falls under a normal va loan. A va renovation loan is a type of va home improvement loan.

VA loan for home renovations

Several types of renovation loans can help with projects on your current home that are simple or larger-scale remodels and additions. The beauty of the va renovation loan is that it can be used as a purchase or refinance loan.

Renovation loans cover a wide variety of projects around the home including simple repairs, updates, and additions, and complete remodels. You can purchase or refinance with a Va renovation loan. Purchasing a home with a va loan doesn’t allow you to get repairs done unless you request that the seller pay for them before closing. Often sellers don’t want to spend more money on the home after they put it on the market. Besides, what if you back out on the deal? That’s why a va renovation loan to purchase is helpful when you want to improve a property without putting stress on the seller that might make them want to sell to someone else.

As you may be aware some homes don’t qualify for a va loan and may not qualify for a fha loan or conventional loan either due to problems with the house that need fixed upfront. If the home isn’t livable when you’re trying to buy it then it’s not likely to pass the underwriting on most conventional or government loans and definitely not going to work for a va loan. The loan amount for a renovation loan is based on the “as-completed” appraised value of the home as opposed to the present value. This creates borrowing power that you can utilize to get the most out of your home improvement loan program.

Home buying isn’t easier now with the way rates have risen. We’ve also seen some recent volatility. Often times it’s easier to get a better deal buying a home if the home needs work because that often makes it less desirable and appraises for less. We are also seeing natural disasters create problems for homes and that’s yet another reason for a va rehab loan.

We highly recommend considering both a VA renovation loan and home equity loan if you are planning a refinance loan. There is no VA cash out refinance loan program in Texas but a va cash out refinance can be done with other home equity loan products in Texas. Other states don’t tend to have a problem with a va cash out refinance.

Find a lender who offers this loan and get preapproved

Security America Mortgage specializes in VA loans, VA construction loans, VA renovation loans, home improvement loans, and more. Most lenders don’t offer va renovation loans. Don’t forget this is only for your primary residence. A mortgage loan for investors is different and covered under home improvement loan alternatives below. Let Security America Mortgage help you navigate this process. Our company is proud to help our Military Men and Women. Serving those who served is our duty. When looking for a VA lender make sure they aren’t limited to only va loans. Although for the most part, it’s a great benefit provided through Veterans affairs.

Home improvement loan alternatives

Another product that you might want to consider is the Fannie mae homestyle renovation. Renovations loans come in many varieties and names but all have their own purpose. Please check our website for more information on non-va mortgage programs.

A VA energy efficient mortgage is another great VA loan. There are several ways to use a VA Energy Efficient Mortgage that are appealing to Vets. You can use VA energy efficient mortgages on an already energy-efficient home. However, the home must meet the HERS’ energy-efficient standards. If so, then it’s possible that the VA home loan allows qualified borrowers to finance up to $6,000 worth of upgrades . An older home that needs energy improvements might make sense and be used in conjunction with your va renovation loan or va home loan.

The Federal housing administration also has programs that you can learn more about at securityamericamortgage.com. The FHA 203k loan is one example. Home improvement loans are great for making home improvements and an existing mortgage may qualify for a home equity loan. Supplemental loans are also an option to explore. A VA supplemental loan requires a certain process.

According to the Veterans Affairs “In order to file a Supplemental Claim, you must add evidence that is new (or not provided to VA previously) and relevant to your case. You can file a Supplemental Claim anytime, but we recommend you file within one year from the date on your decision letter. Note: You can’t file a Supplemental Claim if you have a contested claim.”

A VA supplemental loan is designed to help eligible Veterans who already have a VA home loan make improvements or modifications to their homes at a low cost. These va loans may be financed as a second mortgage, included in a refinance loan, or added to a borrower’s existing va mortgage. VA Supplemental Loans Eligibility requirements include occupying the property as your primary residence, currently having a va loan, and no problems with the VA on an existing va loan.

Eligible Property

• 1 Unit Primary Residence (attached/detached)
• 2 Unit Primary Residence (attached/detached)
• Manufactured Housing is allowed but Condominium Units are not permitted 

Obtain your Certificate of Eligibility (COE)

Let Security America Mortgage use its direct VA access to obtain your Certificate of eligibility online instantly. Do you have your DD214 handy as well? VA renovation loan lenders like Security America Mortgage go above and beyond the call of duty to help you.

Get quotes from a registered VA builder or contractor

VA builders and contractors can be difficult to work with so do you due diligence. Security America Mortgage as a VA registered builder map that also includes VA builders and contractors approved for va rehab loans and va construction loans.

Can VA loans include renovation costs?

Absolutely, VA loans can include renovation costs and that’s a va renovation loan.

Can I use my VA home loan to remodel my house?

Absolutely, you can get a va renovation loan to remodel your house.

Alternatives to a VA renovation loan

Consider building a home with a va construction loan or a home equity line.

What is a VA rehab loan?

A VA rehab loan can essentially be va renovation loan, va rehabilitation loan, va home improvement loan and va supplemental loans. Let us give you thorough examples of the different products based on your situation.

Does the VA do renovation loans?

No the VA doesn’t do VA renovation loans but it plays a vital part in this process.

Is there private mortgage insurance on va renovation loans?

No, there isn’t private mortgage insurance but there is a funding fee unless you’re a disabled Veteran.

Can I do a purchase loan as a renovation loan?

Yes, that’s a great benefit and discussed more above.

Is a down payment required by the department of veterans affairs?

No, a down payment isn’t required but VA lenders can impose one for multiple reasons that would help you qualify.

What is a fixer upper?

A fixer upper is a home that needs work. The as completed value is part of the appraised value and allows you to get more of a loan than just the acquisition cost of the home before improvements.