I recently attended a workshop with representatives of iMortgage where we discussed financing options for distressed properties. I was familiar with the FHA 203k renovation loan but I was not familiar with the VA renovation loan. Since I work with Veterans who are buying and selling homes everyday, this was of extreme interest to me.
Distressed Property Solutions
The more common distressed property solutions are the FHA 203k Streamline / the FHA 203k Standard and the Fannie Mae Home Style Mortgage. These loans are often used in situations where sellers are unwilling to make repairs and insist on selling ‘As-Is’; and where Buyers are willing to do repairs but cannot do them prior to closing BUT, the repair(s) is a condition of closing (stuck between a rock and a hard place); or, when a buyer finds the perfect location with a not so perfect house. With 42k being the average cost for a home remodel, it is very often out of reach for a buyer to pay for a remodel outside of the mortgage – these loans allow the remodel to be rolled into the mortgage. But what about VA Buyers and VA Loans?
VA Renovation Loans have sometimes been called ‘Unicorn Loans’ because most people don’t believe they exist. The truth is THEY DO EXIST and offer some very compelling options for VA Buyers in today’s competitive market. Some of the renovations that can be covered by a VA Renovation Loan are: Roofs; Gutters and downspouts; HVAC Systems; Exterior wall re-siding; Window and door replacements; Painting both interior and exterior; Wood rot; Plumbing and electrical systems; Tile; Carpet and flooring; Minor remodeling (such as kitchens and baths). Repairs can also include appliances such as free-standing ranges; refrigerators; washers/dryers; dishwashers; microwave ovens. Weatherization of the home can also be addressed including items such as storm windows; doors; insulation; exterior decks; patios; porches; and improvements for handicap accessibility. The VA Renovation Loan does not qualify for structural changes or adding square footage to the home.
The VA Renovation loan follows these guidelines:
- Loan Amount – up to county limit
- NO minimum for repairs
- Maximum for repairs is 35k
- NO structural items
- Must be primary residence
- Credit Score minimum of 585
- Property must be classified a Single Family Home
Here is an example of how a VA Renovation Loan compares to a Traditional VA Loan:
Traditional VA Loan VA Renovation Loan
Purchase Price $ 100,000.00 $ 100,000.00
Rehab Amount $ 30,000.00 $ 30,000.00
Financed Amount $ 100,000.00 $ 130,000.00
Cash Required $ 30,000.00 $ 0.00
How to Get Started
It’s simple really – FIRST, you need an Agent and a Lender who are familiar with the program and how it works. Then,
- Speak with a qualified lender to acquire a Renovation Pre-Qualification Letter
- Start Shopping: find the perfect property and identify the renovation project
- Have your qualified Agent prepare a purchase offer which includes the VA Renovation guidelines
- Obtain inspections; Get a HUD Consultant write-up; Obtain estimates
- Have your qualified Agent run comparable for price
- Finalize the contractor bid for remodel/repairs
- Order the Appraisal
How do You Get to Closing?
The appraisal will take into consideration the finalized bid for remodel/repairs and will reflect the value of the home with stated remodel/repairs. Once the appraisal is received and finalized the closing is prepared. Work, on the home, does not commence until after the sale. The average time frame for closing is 45-days with 14 days consisting of getting and finalizing the bid for remodel/repair. The program allows for up to 3-months to complete the work after closing.
You find a home in the RIGHT neighborhood, RIGHT school district, BUT not the RIGHT house. This program can help you make it RIGHT! Stop being told that a house you love cannot be yours because it doesn’t qualify for government financing. NOW – you have the control and the ability to compete for these homes!