On June 15, 2020, the Department of Veterans Affairs (VA) released a simple, single-page document: Circular 26-18-7 Change 1. What makes it important, especially if you’re interested in VA home renovation loans? The document adds a year to the expected lifespan of Circular 26-18-7, the document that details how a VA home renovation works.
How a VA Home Renovation Works
Circular 26-18-7 ensures that all of the parties involved in a VA home renovation loan know what to expect by laying out guidelines. While it’s full of important information, it’s not an entertaining read. If you’d rather not slog through the entire document, here’s what you need to know about how a VA home renovation works.
Same Popular Advantages
The many advantages offered by VA loans are widely recognized. With no down payment requirement, competitive interest rates, favorable terms, no mortgage insurance needed, and relaxed qualifying standards, a VA loan can be a fantastic tool for homebuyers. As MilitaryBenefits.info notes, VA home renovation loans offer the same popular perks.
Purchase or Refinance
Are you eager to purchase a fixer-upper? Is the home you already own in need of some work? In either of these situations, a VA home renovation loan could be the ideal solution. As The Military Wallet reports, renovation loans are available for both purchases and cash-out refinances.
One Loan with One Payment
With a VA home renovation loan, borrowers get the funds they need for both the home and the desired remodeling, repairs, or retrofitting in one loan with one payment, one interest rate, and up to 30 years to pay it off. As Bigger Pockets points out, borrowers can secure up to 25 percent of the home’s “as completed” value, the amount it will be worth once the work is done, to pay for renovations. The renovations must be done by a VA-approved contractor, and they should be completed within 90 days.
Basically, a VA renovation loan is not designed to fund major structural changes. Instead, it is intended to bring a fixer-upper up to the VA’s Minimum Property Requirements.
What is the process for obtaining and using a VA home renovation loan? The VA explains the process step by step:
- Check the borrower’s qualifications. The lender must verify that the borrower is eligible for a VA loan. They must also check that the borrower has sufficient credit and income for the loan that they are seeking.
- Note the scope of repairs or alterations. All work must comply with the eligibility requirements set by the VA. It should be typical of the projects commonly found on properties of comparable value in that community.
- Order a VA appraisal. The lender orders a VA appraisal. The appraiser considers the value of the property and its compliance with the VA’s Minimum Property Requirements.
- Underwrite the loan. The lender reviews various factors, including the borrower’s financial situation, the property’s value and price tag, and the nature and cost of the proposed repairs in order to determine if it is willing to issue the loan.
- Issue the Notice of Value. The VA or lender reviews the appraiser’s report, confirms that it is reasonable, and issues a Notice of Value that states the home’s value.
- Close the loan. During closing, the purchase is completed and ownership of the home is transferred. The funding fee must be collected within 15 days of closing.
- Establish a draw account. The lender sets up a separate account for the funds intended for use for the renovations.
- Begin renovations. The contractor begins the planned renovations. With the approval of the veteran, the lender provides payment as work is completed.
- End the renovation project. After the work is completed, a VA appraiser conducts a final inspection to confirm that everything is satisfactory and bring the project to a close.
- Proceed with the guaranty of the loan. After receiving the final report from the VA appraiser, the VA issues the guaranty of the loan.