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VA Renovation Loans: How Do They Work?
By Aly J. Yale MONEY RESEARCH COLLECTIVE
It’s no secret that desirable for-sale homes have been in short supply, and it’s become more popular to buy —- or stay put in — properties that require work to make the grade. Fortunately, if you’re eligible for assistance from the Veterans Administration, you can get help with such upgrades.
With a VA renovation loan, you can purchase a home in need of TLC — and finance the repairs and updates it needs. You can also use these loans to improve your existing home, as long as it’s secured by a VA mortgage.
Are you considering a VA renovation loan? Here’s what you need to do.
Table of contents
- What is a VA renovation loan?
- Why a VA renovation loan?
- How does a VA renovation loan work?
- How to qualify for a VA renovation loan
- How much can you get from a VA renovation loan?
- Eligible and ineligible improvements
- Where can you get a VA renovation loan?
- VA renovation loan FAQs
- Summary of our guide to VA renovation loans
What is a VA renovation loan?
A VA renovation loan (also called a VA rehab loan) is a type of loan offered through the Department of Veterans Affairs that can cover the costs of alterations, repairs or improvements on VA-backed properties.
You can use this loan to finance the purchase price of a property plus certain repairs and renovations with a single loan. Or, if you already own a home, you can use it to refinance a VA loan, and update your property. In some cases, you may be able to get an entirely separate loan for your renovations. These are called VA supplemental loans.
Like other types of VA loans, VA renovation loans are only available to U.S. military service members and veterans who meet certain service requirements. Some Reserves members, National Guard members and surviving military spouses may also be eligible.
Why a VA renovation loan?
VA renovation loans — and all VA loans, for that matter — have some pretty notable benefits. If you’re eligible for get one, then, it’s often a better choice than other financing products.
Still, that doesn’t make a VA renovation loan right for everyone or every situation. Here are the pros and cons you’ll want to weigh before applying for a VA renovation loan.
Advantages of VA renovation loans
- Low interest rates: VA loans are known for their modest cost. Getting a VA renovation loan instead of other types of home improvement loans — like a home equity loan or traditional refinance, for example — will likely mean a lower mortgage rate and more savings in the long run.
- Access to lots of cash: With VA renovation loans, you can borrow up to 100% of the estimated after-repair value of the home. Few loan programs offer anything comparable. (Be aware, though: Some lenders may have individual loan limits they won’t exceed).
- Opens the door to more properties: If you’re having trouble finding a move-in ready house you love, a VA renovation loan can make fixer-uppers and older homes a viable option for you.
- No down payment required: If you’re using a VA renovation loan to purchase a house and fund renovations, you won’t need a down payment, unlike with other mortgage loan options.
Disadvantages of VA renovation loans
- Not widely offered: VA renovation loans aren’t that common. In fact, some of the largest VA loan lenders (like Veterans United, for example) don’t even offer them.
- A lot of red tape: These loans can be complicated. You’ll need to get upfront estimates and an appraisal, funds are disbursed in stages (and require written approval) and the property must pass a final inspection.
- Repair limits: The VA has limitations as to what renovations and repairs are allowed with the loan. Funds from the loan can be used only to do updates that improve the basic utility or livability of the home, and you can’t make major structural changes either.
- Contractor constraints: When using a VA loan to improve your house, you can only use VA-approved contractors and builders. You cannot do any of the updates yourself.
How does a VA renovation loan work?
The process for a VA renovation loan is a little complex. You’ll start by getting your Certificate of Eligibility (COE) and getting prequalified with a VA-approved lender.
Then, you’ll need to do the following:
- Determine the scope and costs of your repairs: To do this, you’ll need to consult a VA-approved contractor and have them draw up an estimate for your proposed renovations.
- Get an appraisal: Once you have an estimate, your lender will order a VA appraiser to determine the as-completed value of your home. They’ll use that value to set your loan amount.
- Close on your loan: The lender will issue a Notice of Value, and you’ll close on your loan. You’ll also pay your VA funding fee and any closing costs at this time.
- Set up a draw account: Your lender will set up an escrow account to hold your renovation funds, which will be disbursed directly to your contractor or builder in phases as the project progresses.
- Complete the repairs and appraise the home again: When all your renovations are complete, the lender will order another VA appraiser to ensure the property meets the VA’s minimum property requirements.
It can be a daunting process, so it’s important to work with contractors who are familiar with VA renovation loans and their unique requirements. This will help your project stay on track and be successful.
How to qualify for a VA renovation loan
To qualify for a VA renovation loan, you and your property must meet several requirements.
These include:
- You or your spouse must have the VA’s required military service record and be able to obtain a COE.
- You must meet your VA lender’s credit score minimum (typically 620, though this varies).
- The home you’re repairing must be your primary residence and financed by a VA loan.
- Your debt-to-income ratio must be 41% or lower (some exceptions may be allowed).
Keep in mind that each lender has its own VA loan requirements, so you’ll need to check with the company you’re considering for specific eligibility standards — particularly regarding credit score.
How much can you get from a VA renovation loan?
Lenders do have maximum renovation costs that they allow for these loans, but they vary by lender. For some, it’s as little as $50,000, while others go up to $100,000. This is why it’s critical to shop around, particularly if you’re seeking a large loan amount.
Eligible and ineligible improvements
You can’t make just any updates or repairs — at least if you want a VA renovation loan to cover the costs. According to the VA, alterations need to improve the “livability or utility” of the home — meaning aesthetic or luxury upgrades won’t qualify.
Here’s a list of some common repairs that are eligible under VA renovation loans and some that aren’t.
| Eligible improvements | Ineligible improvements |
| Repairing or replacing basic systems, like HVAC, plumbing or electrical systems | Repairing foundation issues |
| Removing hazards or hazardous materials, like asbestos or lead-based paint | Landscaping improvements |
| Repairing or installing new roofing | Installing a swimming pool, sauna or sport court |
| Repairing or adding siding, gutters or downspouts | Adding an outdoor fireplace |
| Connecting the home to public water or sewage systems | Mold remediation |
| Purchasing and installing new appliances, including refrigerators, washers, dryers, ovens and dishwashers | Installing or repairing private water systems or septic systems |
| Adding safety features like smoke or carbon monoxide detectors | Structural modifications or repairs |
| Repairing walkways and driveways | Any DIY work |
Where can you get a VA renovation loan?
VA renovation loans aren’t a very commonly offered loan product. A few VA lenders that offer these loans include Magnolia Bank’s VA Nationwide Home Loans branch, Highland Home Loans and Community First National Bank’s National VA Loans branch.
If you’re interested in applying for a VA renovation loan while on active duty, see our guide to getting a VA loan while deployed.
VA renovation loans FAQs
What happens if you exceed the maximum renovation financing?
With a VA renovation loan, you can borrow up to 100% of what the appraiser determines is your home's as-completed value. If your renovation costs end up going over that amount, you'll need to cover the expenses out of pocket.
How long does it take to get a VA renovation loan?
VA renovation loans have a pretty long and drawn-out process. There are many steps to complete — including contractor estimates and VA appraisals — all before you can close on your loan. The exact timing depends on your lender and the speed at which you find a contractor and appraiser, but you can generally expect it to take at least a few months from start to finish.
Can you get a renovation loan with a VA loan?
Yes, the VA allows you to use a VA loan to fund both a home purchase and expected repairs/renovations all at once. You can also refinance an existing VA loan to cover renovations or, in some cases, take out a supplemental renovation loan to repair a home you already live in.
What's the difference between a VA renovation loan and a VA loan?
A VA renovation loan is either a "VA loan for alteration or repair" or a "supplemental loan." In both cases, they're a form of VA financing that you can use to cover home repairs and renovations. They have the same military service requirements and come with the same benefits (low rates, 100% financing, no mortgage insurance, etc.).
You can use a VA renovation loan to purchase a fixer-upper house and make necessary upgrades, while a regular VA loan is for buying a move-in-ready house. See our VA home loan guide to learn more about VA loans.
Are there alternatives to the VA renovation loan?
The VA also offers energy-efficient mortgages, which you can use to make energy-saving upgrades to your home, or a cash-out refinance loan. This type of refinancing allows you to take out a larger VA loan, pay off your old one and keep the cash. You can then use this cash toward home repairs or any other costs you might need to cover. (This might be smart if you want to make aesthetic upgrades or other repairs that don't qualify for a VA renovation loan).
If you want to look outside the VA realm, an FHA 203 loan, the Fannie Mae HomeStyle loan program, home equity loans or a HELOC (home equity line of credit) may be an option. The latter two let you turn your home equity into cash, which you can use however you'd like. Just keep in mind: They're both a form of second mortgage, meaning you'll have a second monthly payment in addition to your main monthly mortgage payment.
Finally, a VA construction loan may also be an option if you're considering building a new home from the ground up.
Summary of our guide to VA renovation loans
VA renovation loans can be handy, both for VA-eligible homebuyers and existing VA borrowers looking to bring their current homes up to snuff.
Remember, though: These loans complicated and not commonly offered. And you can’t use them for frivolous improvements. The planned changes must make the home more livable and useful.
If you’re considering one of these loans, take time to research and prepare before jumping in. Zero in on what improvements you want to make, and find a VA-approved contractor in your area. You should also follow these VA loan tips and buckle in for a potentially lengthy process.
