A VA home improvement loan can help with various repairs, and you’ll receive more competitive rates and terms than traditional types of loans. Borrowers can choose from several types of VA home improvement loans depending on their needs, and you can use the capital for various purposes. This guide will explore the perks of VA home loans, how to apply for one, and other details that you should know.
Can You Use a VA Home Loan for Home Improvement?
You can use a VA loan for home improvements. It’s also known as a VA rehab loan or a VA renovation loan. You can also choose from traditional options if you prefer not to use a VA home improvement loan.
What is a VA Home Improvement Loan?
This financial product provides the necessary capital for qualifying home improvements, such as structural repairs, remodeling, and renovations. These loans have competitive rates and terms. This loan is the VA’s version of the FHA 203(k) loan.
Who is Eligible for a VA Home Improvement Loan?
Veterans and service members are eligible for VA home improvement loans if they have served enough time in the military, as outlined by the Department of Veterans Affairs. Their spouses are also eligible for VA home improvement loans.
The Benefits of VA Home Improvement Loans
VA home improvement loans have several advantages. These are some of the highlights.
No Down Payment
You don’t have to make any down payment to receive a VA home improvement loan. That removes a major obstacle for people who want to buy a home and roll over the costs of the home improvement into the loan.
Competitive Interest Rates
VA loans have the most competitive rates in the industry, which are lower than traditional mortgages. That’s one of the perks of being a former or active veteran or service member. This advantage also applies to their spouses.
Flexible Repayment Terms
A VA home loan has flexible repayment terms that can go as long as 30 years. The lengthy loan duration results in lower monthly loan payments that will feel more manageable for borrowers.
Limits on Closing Costs
VA home improvement loans have more generous closing costs than other loans. Saving on this big expense can give you more money to make repairs.
What Can You Use It For?
VA loan borrowers can use the proceeds of a home improvement loan for several purposes. These are the options.
Remodeling and Renovations
A VA home improvement loan can help with remodeling and renovation projects. Whether you want to redo the bathroom or modernize your kitchen, VA home loans can help.
Energy Efficiency Improvements
Making energy efficiency improvements can reduce your bills moving forward. The VA program gives borrowers the capital to make those enhancements and wind up with lower monthly utility bills moving forward.
Structural Repairs
Homeowners can tap into VA home improvement loans to make structural repairs for their properties. However, there are limits. You can’t do significant structural work that involves adding a pool or another floor to the property. Basic structural repairs that don’t significantly change the property’s value tend to be fair game, with detached garages as a notable exception.
Accessibility Modifications
Any home improvements that enhance accessibility are also eligible for VA financing. You can use the capital to make improvements and then pay back the loan over time.
Types of VA Home Improvement Loans
Homeowners can choose from several types of VA home improvement loans. These are the choices.
VA Cash-Out Refinance Loan
A VA cash-out refinance loan allows you to tap into the equity that you have built in your home. You’ll end up with a higher loan amount, new terms, and a different annual percentage rate (APR). Homeowners build equity each time they make monthly mortgage payments or when their properties gain value.
VA Renovation Loan
VA renovation loans allow you to borrow extra capital for the purpose of improving your property. These loans have competitive rates and terms, especially when compared to traditional mortgages.
Energy-Efficient Mortgage (EEM)
An energy-efficient mortgage is specifically for homeowners who want to make their homes more energy-efficient. This model can reduce your monthly utility bills in the long run.
VA Supplemental Loan
You can refinance an existing VA loan or take a VA supplemental loan out as a separate financial product. You can’t make significant changes with this loan, such as adding another floor. However, you can make renovations that improve the property’s functionality and livability.
How to Apply for a VA Home Improvement Loan
While applying for a VA home improvement loan can sound stressful, it’s not so bad once you know the steps. Here’s what you can expect if you need additional financing.
The Application Process
The VA loan application process is straightforward. You will have to find VA-approved lenders and review their requirements. Once you submit the necessary information, you will then have to compare offers and decide which one is right for you.
Pre-qualification Steps
You’ll have to follow a few pre-qualification steps after selecting a VA lender. A pre-qualification may result in a hard credit check, but most lenders only conduct soft credit pulls. These are the steps to know:
- Step 1: Check your credit score and make improvements if you have enough time
- Step 2: Gather the necessary documents
- Step 3: Submit your information to lenders
- Step 4: Wait for approval and compare offers
Necessary Documentation
Aspiring VA borrowers need to provide several documents for their applications. These are some of the documents you will need:
- Certificate of Eligibility (COE)
- Personal ID
- Social Security Number
- Proof of income (i.e., tax forms and bank account statements)
- Employment documents
Fees and Costs
Homeowners will have to contend with closing costs like appraisal fees, origination fees, and title fees during the process. However, you will also have to pay a VA funding fee that supports the Department of Veterans Affairs. This fee ranges from 1.25% to 3.3% of the loan amount, depending on how much money you put down. A 10% down payment allows you to qualify for the lowest VA funding rate, while a down payment below 5% results in the highest VA funding rate.
Is a VA Home Improvement Loan Right for You?
A VA home improvement loan offers competitive rates and terms and allows you to get approved without putting any money down. These loans can help with basic improvements. However, if you want to make significant changes, such as adding a pool or another floor to your property, you will have to use another type of loan. Furthermore, you can only use a VA home improvement loan for a primary residence. Real estate investors seeking home improvement loans for investment properties will have to consider an alternative.
If you’re considering enhancing your home or refinancing your existing mortgage, The Federal Savings Bank is here to help you navigate the options available to you as a veteran or active duty service member. While VA home improvement loans can provide funds to upgrade your property, many homeowners find that a VA refinance may better suit their needs.
A VA refinance loan can not only lower your monthly payments but also allow you to access cash for renovations or improvements while taking advantage of favorable interest rates. The Federal Savings Bank’s team of experts will work with you to determine the best course of action based on your financial goals and situation. To get started, simply fill out their online form, and a member of their dedicated team will contact you promptly to discuss your unique needs and guide you through the available options.
FAQs About VA Home Improvement Loans
You can only use a VA home improvement loan for a primary residence. Investment properties are not eligible for VA home improvement loans.
You can use the loan for DIY projects that require some financing.
Disabled veterans do not get better mortgage rates than other veterans or their spouses. However, they receive better mortgage rates than people who did not serve.
