Members of the armed services have access to a special mortgage product referred to as a VA loan. These mortgages often come with lower interest rates and less stringent qualifications.
In the past, a VA loan could only be used to finance a home that met strict minimum property requirements. This means that service members could not invest in older or run-down homes. Thanks to changes in the VA loan policies, a VA renovation loan can now be used in coordination with a home loan to give service members access to any property.
Here is some important information to remember about VA renovation loans:
1. Repairs must qualify.
The main purpose of VA renovation loans is to allow applicants to invest in properties that might need a little bit of work. The repairs that are being made must qualify for approval under the renovation loan guidelines.
All homes that are financed through VA purchase loans need to meet minimum property requirements. Any repairs that you are planning to pay for with a VA renovation loan must help contribute to bringing the property in compliance with the minimum standards. Repairs that do not contribute to the minimum requirements must be funded separately.
2. VA Renovation loans are complementary.
You need to understand that a VA renovation loan is not meant to serve as a stand-alone product before you begin the application process. It is essential that you apply for a VA purchase loan or a VA cash-out refinance loan along with your renovation loan. This ensures that the renovation loan will be used only to fund the repairs you plan to make on the property, not the purchase price of the property itself.
3. Contractors are limited.
When you make the choice to fund major repairs with a VA renovation loan, you must ensure that you partner with an approved contractor for all services related to the renovation process. VA-approved contractors must handle everything — from the initial appraisal to the finished project.
If you don't use a contractor that has been approved by the VA, you run the risk of having your renovation loan recalled and being forced to find other funding to pay for repairs.
VA loans have been helping service members and their families finance homes for years. With the new changes made to the VA lending requirements, service members can now use a renovation loan in coordination with a purchase loan to transform a dated property into the home of their dreams. Contact a VA mortgage lender to learn more.