For veterans and other eligible individuals, receiving a VA loan is an appealing path to homeownership. With no down payment necessary and lower monthly payments than a traditional loan, a VA Home loan helps past and present service members achieve their dream of owning a home.
While on the search for your dream home, you don't need to limit your options to move-in residences. A VA loan can actually be used to remodel or renovate a fixer-upper through a VA Rehab and Renovation loan. Your ideal home may need a little more TLC than planned, so a rehab loan is ideal for moving forward with a home remodel.
If you think you could benefit from a VA Rehab and Renovation loan, here is everything you need to know:
What are VA Rehab & Renovation loans?
VA Rehab and Renovation loans are actually very similar to VA Home loans. According to Military Benefits, they are still mortgage loan type transactions that have an application process and monthly payments. Just like a home loan, you can receive a rehab loan from a private lender who works in accordance with VA regulations.
Like a traditional VA loan, VA Rehab and Renovation loans don't require a down payment and have lower closing costs. These loans were developed with fixer-uppers in mind, and since you can roll renovation and rehab costs into the same loan, you can decide whether you want to bring a home back to its original state or make repairs to improve its functionality.
Options for rehab and renovation loans can differ depending on the lender and the housing market, so make sure to explore your options and talk to a trusted financial advisor about your decision. Not every lender who offers a VA Home loan will offer rehab and renovation loans; be sure to keep this in mind when you're considering a property.
Overall, a VA Rehab loan allows you to purchase a property while providing the financing necessary to make renovations and upgrades to improve the livability and functionality of a property.
Since VA Rehab Loans aren't a separate loan program, but rather an additional dimension to a regular VA Home loan, many of the requirements to qualify are the same, The Military Wallet explains. At Veterans Choice, lenders evaluate InterContinental Capital Group's 3 C's to determine eligibility (along with veteran status). Many of the minimum requirements are different for VA loans to make receiving a loan easier for veterans.
Credit: Helps lenders understand how you manage debt. In the case of VA loans, there is no minimum credit score requirement. You do need to have clean credit for at least a year prior to applying for any VA loan, meaning no late payments or collections.
Keep in mind, individual lenders can impose their own credit score minimums.
Capacity: Is your ability to make your monthly loan payments. For VA loans, most lenders assess the debt-to-income ratio of an applicant. The VA has an official DTI limit of 41%, but again, private lenders can make these decisions themselves.
If you have an exceptional credit score or solid collateral, lenders could set the limit at 50%.
Collateral: Is the value of what you're financing in comparison to the amount of the loan. With a VA-backed home loan, the VA guarantees a portion of the loan you receive from a private lender. In many cases, this acts as the collateral because if you're unable to make payments, the VA will pay your lender up to a certain amount. This provides security to your lender.
A VA Rehab loan can only be used for a family or owner-occupied housing, not for a vacation home or investment property. While there are not many barriers to receiving a VA loan, having good credit and capacity can help you in the long-run.
Stick to renovations with the best ROI
If you do receive a VA Rehab loan, it's best to complete renovations that will have the best ROI should you choose to sell. While a built-in entertainment center might be fun, focusing on projects that increase the livability and esthetics of your home is the best way to go. The National Association of Realtors recently released the best home renovations for their return. Consider using your VA Rehab loan on some of them:
- Flooring: Hardwood is the most popular floor style among homeowners and potential buyers. A relatively simple project like refinishing hardwood floors actually has a 100% ROI, and with new wood flooring, your can recoup 91% of the cost.
- Insulation: It may not be the most exciting project, but investing in new insulation has a 95% ROI (and can probably save you money on heating and cooling costs in the long-run).
- Kitchen: A kitchen upgrade, like new appliances, countertops and hardware has the potential to return 67% of your investment. Try to go for timeless improvements, like stainless steel and sturdy countertops, for the most ROI.
- Roof: A new roof can improve the entire curb appeal of your home as well as serve a purpose. The best part of all? A new roof has a 105% ROI, so you can earn more back than what you spent on it.
- Garage door: If you have a garage, investing in new doors can net you an 87% return. Today, there are many different styles to match the look of your home.
- Front doors: A new steel door, sturdy and great for blocking out drafts, has a 75% ROI. A new fiberglass door can also net you 60% return.
It's important to note that with a VA Rehab loan, a VA registered contractor or builder must complete the repairs, reports The Military Wallet. You cannot use this loan to conduct repairs yourself and the lender will act as the overseer of the project.
VA Rehab Loan with Veterans Choice
Dustin DiMisa created Veterans Choice to assist those who served our country achieve their dream of becoming a homeowner. As CEO of InterContinental Capital Group, he realized the importance of streamlining the loan process and helping individuals understand their options.
You can get help with a VA loan from Veterans Choice today by providing some general information about yourself, your credit and the type of mortgage you are looking for. Our knowledgeable team is here to help you through the entire loan process and answer any questions you may have. Reach out to us today.