Do you want to renovate your home or complete much-needed repairs but don’t have the cash on hand? If you qualify for VA benefits, a VA home improvement loan is worth considering, as it comes with competitive rates and a host of other perks, like no down payment or private mortgage insurance (PMI) requirements.
Can You Use VA Home Loan for Home Improvement?
Yes, you can use a VA home to improve your current property. Or you can purchase and renovate a new one. More on your options shortly.
What is a VA Home Improvement Loan?
Also known as a VA renovation loan, a VA home improvement loan is a mortgage product that helps active-duty service members, veterans and qualifying spouses fund home improvement projects. There are several types to choose from to meet your unique needs.
Who is Eligible for a VA Home Improvement Loan?
Before diving into the specifics of these mortgage products, it’s worth understanding the eligibility guidelines.
- Certificate of Eligibility (COE): You need a valid COE from the VA’s eBenefits portal or your lender.
- Service requirements: Most borrowers should have served a minimum period of active duty.
- Credit scores: While requirements vary by lender, a score of at least 640 is generally required to qualify for funding.
- Primary residence: The home you plan to renovate must be your main living space.
- Loan limits: You can typically finance up to $50,000 for home improvements.
Types of VA Home Improvement Loans
VA Cash-Out Refinance Loan
This loan allows you to replace your existing mortgage with a new one while converting your home equity into cash. You can use the funds however you see fit, whether for costly home improvements, debt consolidation or other more pressing financial needs.
Interest Rate Reduction Refinance Loan (IRRRL)
The IRRRL or VA streamline refinance loan, is designed to help you lower your interest rate and get more affordable monthly mortgage payments. The application process is simple, and you won’t have to submit a mountain of paperwork to be considered for a mortgage.
Energy Efficient Mortgage (EEM)
An EEM lets you roll the cost of energy-efficient improvements into your loan. You can use this mortgage to cover upgrades, like energy-efficient windows, solar panels or insulation that can reduce your energy bills and increase your home’s value.
VA Rehab and Renovation Loan
This loan allows you to finance the purchase price and the cost of repairs or improvements in a single loan. It is ideal if you’re buying a fixer-upper or significantly upgrading your current home. The loan amount is based on the “as-completed” value of the house or its projected market value once renovations are complete.
VA Supplemental Loan
This loan is for current VA mortgage holders who need more funds to pay for home improvements. It can cover minor repairs or extensive renovations, and the amount you borrow is added to your current loan. The amount you can borrow depends on the projected cost of improvements and how much home equity you currently have.
Common Uses for VA Home Improvement Loans
Many borrowers use VA home improvement loans to fund:
- Roof maintenance, repairs or replacement costs
- HVAC system upgrades
- Energy-efficient upgrades, including solar panels
- Modifications to make their home more accessible
The Pros of VA Home Improvement Loans
100% Financing
You can secure a VA home improvement loan with no money down, which helps you keep more of your hard-earned money in your pocket.
Competitive Interest Rates
The attractive terms offered on VA loans mean you’ll get more affordable monthly mortgage payments and lower borrowing costs over the life of the loan.
Streamlined Application Process
The application process for VA home improvement loans is often more streamlined than you’ll find with other types of home loans.
No Need for PMI
Skipping PMI makes your monthly mortgage payments lower, and you’ll save thousands over the loan term.
No Penalty for Early Repayment
This means you can pay off your loan faster without incurring additional fees.
The Cons of VA Home Improvement Loans
Harder to Secure
Lenders have strict guidelines and may require extensive documentation to prove your eligibility, and your primary residence must meet VA standards for safety and livability.
VA Funding Fees
The fee can range from 1.25% to 3.3% of the loan amount, depending on if you’ve previously used a VA loan and the down payment amount (if any).
Lesser Equity to Start With
With a VA home improvement loan, you often have less equity starting out, as the amount you borrow includes the cost of repairs and improvements.
Maximum Repair Limit and Allowable Improvements
VA loans have a maximum repair limit – typically capped at $50,000 – which can be a downside if the scope of your home renovation project is extensive.
Property Restrictions
The property must be your primary residence, and if it needs substantial structural work, it may not qualify for a VA renovation loan.
How to Apply for a VA Home Improvement Loan
Pre-Qualification and Eligibility Check
Only veterans, active-duty service members, and eligible surviving spouses can apply for funding. You’ll need to get a copy of your Certificate of Eligibility (COE) from the VA before formally applying with a lender.
You can request your CEO online using the VA’s eBenefits portal, through your lender, or by mail.
Required Documentation
Beyond your CEO, you will also need to provide proof of income, employment and information about your existing debt obligations. It’s equally important to get a detailed estimate of the repairs or improvements you plan to undertake.
A VA appraiser must review and approve these estimates. Accurate documentation paves the way for a smoother lending process and helps you avoid delays.
Choosing the Right Loan Type
The right VA loan for you will depend on the scope of your home renovation project and your unique financial situation. Be sure to consult with the lender to determine which options work best for you.
Completing the Application
The final step is to formally apply for a VA home improvement loan with your chosen lender. Review the application in its entirety to confirm all fields are complete and accurate before submitting it to avoid issues or inadvertent denial.
Your lender will guide you through the lending process from start to finish until you reach the closing table. Be sure to keep the line of communication with your lender open to keep the process moving smoothly.
Conclusion: Maximizing Your VA Home Improvement Loan
To get the most out of your VA home improvement loan, start by identifying your top home improvement priorities. Whether it’s remodeling the kitchen, fixing the roof or making your home more energy-efficient, knowing how much you need will help you allocate your funds wisely.
Most importantly, work with a VA-approved lender. They will guide you through the process and ensure you meet all necessary requirements to secure the funding you need.
