The VA renovation loan is sometimes called a”unicorn loan”. loanDepot is one of the few companies using a non restrictive version of this product. The VA actually names the product Alterations for improvement and repair. VA renovation loans help veterans to buy homes needing updates or repairs that would otherwise put homes out of reach. Similar to FHA 203k renovation loans, the VA renovation loan is guaranteed by VA for veterans to buy and renovate existing property using their VA entitlement benefit. And you can buy and repair with as little as no money down just like a regular VA loan.
Do you think this is too good to be true? see one of our recent VA renovation loan client testimonials in purchasing a Freddie Mac foreclosure and including all of the repairs. Tom was able to get the home of his dreams where other lenders told was not possible. He even had other lenders refute the program even existed.
VA Renovation loan process
The process for VA renovation loans works like this: The veteran completes the VA loan application just as they would a regular VA purchase. Then provides a contractor bid for all repairs desired and required. Next, the VA Appraiser with give a subject to completed value. Even if there are normal repairs that would keep a home from typically being financed with VA, it is okay so long as we have spelled out the work to be completed in the contractors scope of work. The future value based on the improvements being completed in the NOV ( Notice of Value) or appraisal. Lastly, the plans and specifications for the improvements must be itemized along with an estimate for how long the construction period will last. There are various version of this product from lender to lender but the VA does not have a renovation amount cap. (See article on VA Renovation loan Myths)
Limited VA Renovation (Alterations for improvement and repair)
Not all companies will have the full VA renovation product. We, in fact, started out with similar limitations. The limited VA Renovation loan will only allow for similar repairs in the FHA 203k limited repair program ( Formerly streamline ). These repairs would include but not limit to cosmetic repairs like flooring, roofing, wood rot, kitchen remodeling, bathroom remodels, electrical repairs, and appliances. Many will not allow a Health, livability, Hazard or safety repair. Very similar to the FHA 203k limited program with a 35,000 cap. Just like a regular VA loan the program will allow for as little as 0 down ( 100% Financing). You do have options to do more with the right company if they have the Standard VA Renovation program!
Standard VA Renovation (alterations for improvement and repair) WAIT There’s more!
There is a Full version of the alterations for improvement and repair program similar to 203k Standard (aka the Consultant 203k ). The VA program allows you to address homes with extensive repair, structural damage, additions. It also allows for health hazard and safety repairs. Some folks are not set up for this program yet. This is where you may obtain misinformation. There is a lot of disparity between lenders for this program on acceptable repairs. Some even limit this to just purchase transactions but you ARE allowed to do it on refinances as well. This product does require the use of a Consultant to oversee the project. Other restrictions and qualifications do exist. Please speak with your loan officer for details. The home will have to appraise for subject to value for all repairs. There is something called a contingency reserve that will need to be held with the lender. There are also other soft costs associated. A loan officer should be able to detail these in a MMW ( Maximum Mortgage Worksheet ).
For all of these VA solutions, the home and project have to appraise in subject to completion value. The bid is the key driver to closing these loans. We will need one general contractor’s bid. We will need their VA Builder ID prior to the underwriter issuing the Notice of Value. WE can help them obtain this ( See contractor resources ). Again, these are cumbersome loans so you should work with an industry specialist when considering this option to collect all facts up front!
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