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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Buying a home that needs a little TLC can frequently be cheaper than buying a home that doesn’t need any work, but paying for those repairs can be difficult. Luckily, if you’re a member of the military or served in the past, there’s a great way for you to finance renovations. If you’re eligible for a , you can purchase and repair a with a VA rehab or renovation loan, which lets you roll repair costs into your mortgage. What is a VA renovation loan
A VA renovation loan is a type of mortgage that finances both the home you’re looking to purchase and the cost of home improvements and repairs, or that allows you to refinance and fix up your current home. VA loans are backed by the U.S. Department of Veterans Affairs and are available to those who are serving in the military or have been honorably discharged (and surviving spouses). VA loans do not require a down payment or mortgage insurance, and many lenders offer them. However, not all offer VA renovation loans, and the few that do might have temporarily paused issuing them in the last year. How VA rehab and renovation loans work
VA rehab and renovation loans work similarly to a regular VA loan, but with a few more steps. You’ll have to get estimates from a VA-approved contractor for the work you’d like to have done. An appraiser will then give an estimated value of the home after the proposed changes have been completed. The VA rehab and renovation loan will only finance up to the amount the appraiser believes the home will be worth or the total cost of the home purchase plus the estimate from the contractor, whichever amount is lower. Let’s say Jada bought a home priced at $200,000 and a contractor quoted the renovations at $30,000, for an all-in cost of $230,000. If after reviewing the estimates the appraiser believes the home’s value will be $210,000, she’d be able to finance that amount (assuming she meets the other loan qualifications). If the appraiser were to value the home at $240,000, she’d still only be able to finance $230,000. VA rehab loan requirements
VA loans, including VA rehab loans, have a set of borrowers need to meet to be eligible. These include and a (COE), and: A credit score of 620 or higher Intent to live in the property as the primary residence For a VA rehab loan, borrowers are also required to have the repair work finished within 120 days from the closing of the loan. Acceptable home improvements and repairs
In general, the home improvements you do with a VA rehab loan should improve the accessibility, functionality and safety of the property, such as HVAC or plumbing upgrades, new insulation or mold remediation. Cosmetic or luxury renovations typically aren’t considered acceptable improvements. Pros and cons of VA renovation loans
Expanding your home search to include homes that need significant work can help you find a home quicker, especially in a real estate market with low inventory. However, in a hot local real estate market sellers may not be willing to wait or deal with the hassle of finding a contractor to get quotes for needed repairs and wait for appraisals when they could just sell to a real estate investor offering cash. Here are other pros and cons of VA renovation loans to keep in mind. Pros
You can finance repairs for cheaper than alternatives like a personal loan. Allows you to put 0% down as opposed to a non-VA home improvement loan. You can save on the initial purchase price over a turn-key home. Cons
They’re only for livability repairs, not stylistic or cosmetic improvements. You’ll have to pay for the difference between the as-completed value and repair costs. Can be difficult to find a VA-approved contractor depending on your area. Alternatives to VA rehab loans
that offers a VA renovation loan can be challenging, so if you’re struggling to find one, consider one of these alternatives: – This type of FHA loan only requires 3.5 percent down and can help you pay for both the price of the home and the cost of upgrades. Unlike a VA renovation loan, the amount you can finance is capped at 110 percent of the appraised value of the home (the lesser of the “before” or “after” reno value), and you’ll need to pay mortgage insurance. However, the work can take as long as six months to complete, if needed. – Fannie Mae’s HomeStyle loan allows you to buy and fix up a property, with the amount of financing limited to 75 percent of the “after” appraised value. Notably, this type of loan can be used for investment properties or second homes. – A construction-to-permanent loan is also a one-time loan, but you’ll likely pay a higher interest rate. There are that have less strict underwriting, which can be a fit if you have a lower credit score. – If you already own a home, have some equity and want to make repairs, you can get a home equity loan worth up to 80 percent (sometimes more). This type of loan has a fixed interest rate and typically gets repaid over anywhere from five to 30 years. SHARE: Dhara Singh is a former mortgage reporter for Bankrate. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Related Articles