VA renovation loan: How to qualify and apply

Rocket Mortgage^® does not offer VA renovation loans or Home Equity Lines Of Credit (HELOCs)  at this time.
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If you’re on a tight budget for a home and eligible for a Veterans Affairs loan, a fixer-upper may be an appealing option. If you’re looking at a house that needs a lot of work, a VA home renovation loan can help you buy the home and pay for renovations with one loan.

VA renovation loans are available to eligible military personnel, veterans, and their surviving spouses. While Rocket Mortgage^® offers VA loans, it does not provide VA renovation loans.

What is a VA renovation loan?

A VA renovation loan, sometimes called a VA rehab or reno loan, allows borrowers to include the cost of specific repairs or improvements in their loan amount.

This means that VA loan borrowers can buy a fixer-upper and afford to make repairs or upgrades without needing a separate loan.

You’ll have one loan that covers the purchase price for the property as well as any eligible repairs or improvements done while remodeling or renovating your home.

Eligible properties

VA loans are intended to be used to buy a primary residence. This includes a property with up to four units, if you plan to live in one of them.

The VA loan occupancy requirements state that you must make the home your primary residence for a year.

After that, you’d be free to rent out the unit where you were staying, purchase another multiunit home, and repeat the process again.

Allowed improvements

VA renovation loans can be used only for repairs or upgrades that make the home more useful, livable, and safe.

The VA states that the alterations and repairs must be those typically found on comparable properties in the area.

Common alterations and repairs include:

• Heating and cooling system repairs or replacements
• Foundation repairs
• Updated flooring or roofing
• Electrical or plumbing system repairs and replacements

Your lender can provide more information on what qualifies as an improvement or repair.

You must use a contractor with a valid VA Builder ID, and all must be completed within 120 days of closing.

Maximum renovation cost

VA renovation loan lenders typically have a limit on how much they’ll lend for repairs and improvements. This maximum renovation amount is often capped at $50,000, but it depends on the lender.

So, if you wanted to buy a house for $300,000 and your lender has a limit of $50,000 for repairs, the most you’d be able to borrow is $350,000.

The exact total amount you’ll be able to borrow will depend on the home’s sale price plus the cost of your proposed renovations, or the estimated value of the home once those renovations have been completed. You’ll be able to borrow the lesser of these two amounts.

For a more specific example, consider using this mortgage calculator from Rocket Mortgage to assess the affordability of your VA loan.

VA renovation loan vs. VA purchase loan

VA renovation loans are VA loans and come with all the same benefits and requirements as a standard VA purchase loan.

As with a normal, purchase-only VA loan, VA renovation loans allow borrowers to purchase a home with no down payment. You also pay a one-time funding fee, which can be rolled into the loan along with closing costs, and relatively low interest rates compared with other mortgage types.

With a VA renovation loan, because you’re also getting funds to pay for repairs, there is a tougher qualification process. This includes getting quotes from contractors who are registered or willing to register with the VA, approval for improvements, and having a VA appraiser determine what the value of the property will be once the work is completed.

Who qualifies for a VA rehab loan?

To get a VA renovation loan, you’ll need to be eligible for a VA loan. Here’s a look at what you’ll need to qualify for a VA renovation loan:

Minimum service requirements

First and foremost, this means that you’ll need a certificate of eligibility (COE), which certifies that you meet the minimum service requirements based on your military status and time served.

Veterans or active duty servicemembers are generally eligible for a VA loan if they’ve served 90 consecutive days of active service during wartime or 181 days during peacetime. The minimum service requirement for National Guard or Reserve members is 6 years. Qualifying surviving spouses are also eligible for a VA loan.

The VA will guarantee a specific amount of money on a borrower’s VA loan. This is known as the VA loan entitlement.

Lender credit standards

In addition to meeting basic service requirements, you’ll also need to meet your lender’s credit standards.

• Credit score: The government sets no minimum VA loan credit score for the loans it guarantees. However, lenders can and usually do have their own requirements. You’ll likely need a credit score of at least 620 to get a VA renovation loan.
• Debt-to-income ratio: The VA itself doesn’t set a maximum DTI ratio, but lenders may establish their own limit. A typical maximum DTI ratio for VA programs is 41%.
• Income: You’ll also need to be able to show a reliable source of income that is sufficient to meet your lender’s requirements.

Check with your VA loan lender for specifics.

Pros and cons of the VA renovation loan

On top of the great benefits that come with a standard VA loan, some additional potential benefits come with a VA renovation loan, as well as some drawbacks to consider.

Pros

Consider the advantages of a VA renovation loan.

• Only one loan to manage: Rather than getting separate loans for the purchase and renovation, you’ll have just one loan to cover both the purchase price and your repair costs.
• More home options: If you’re struggling to find a move-in-ready home that fits your budget, a VA renovation loan might be a helpful option, since it allows you to purchase a fixer-upper and gives you the funds to renovate. This is especially helpful in competitive housing markets.
• Borrow the as-completed value: Most mortgage amounts are based on the current value of the property in question. With VA renovation loans, loan amounts are based on the value of the property after improvements have been completed, as determined by a VA appraiser.
• Perks compared to some alternative loans: With a VA loan, you may qualify for no down payment, no mortgage insurance, better rates, and a streamlined process. These are significant benefits as compared to other types of home improvement loans.

Cons

There also are drawbacks to a VA renovation loan to consider.

• Fewer lender and contractor options: You can’t just choose any contractor. Anyone who does work on your project must be licensed and approved by the VA or be willing to go through the approval process.
• Limited allowable improvements: VA renovation loans can only be used for repairs and upgrades that improve the safety and livability of the home. They can’t be used for luxury improvements.
• Maximum repair limits: If you’re looking at buying a house in need of expensive repairs, you might not be able to find a lender who will lend you enough to cover the cost of those repairs.
• Inability to exceed the home’s as-completed value: A VA loan can only be for the lesser of the home’s after-repair value or the total purchase price plus renovation cost. If the total cost to purchase and repair your home exceeds the property’s after-completed value, you may need to bring out-of-pocket cash to closing to cover the difference.

How to get a VA renovation loan

The process to get a VA renovation loan is similar to obtaining a VA purchase loan.

Here are the basic steps:

• Obtain quotes from VA-registered contractors. The VA doesn’t approve contractors, but it does require your contractor to register with the nearest VA Regional Center to obtain a VA builder ID number
• Have a VA appraisal completed. Your lender will work with you to schedule a VA home appraisal, which will be completed by a VA-certified appraiser. You'll need to pay the VA appraisal fee. This appraiser will determine the as-completed value, or what the value of the property will be after all repairs and improvements are completed.
• Begin the repairs after closing. After closing, you will be responsible for ensuring that the renovations are being completed by the contractor. Your lender will be responsible for managing and disbursing the repair funds.
• Get a final inspection from the VA appraiser. A VA appraiser will confirm that the project has been completed and that the home conforms to VA loan inspection requirements.

Alternative home improvement loan options

Because they can be difficult to find and aren’t always the best fit for home buyers and owners – especially those looking to make significant repairs – it might make sense to consider some alternatives to a VA renovation loan.

• VA cash-out refinance: A VA cash-out refinance loan can be a good option if you are looking to refinance and also pull out equity from your home.
• VA energy-efficient mortgage: An energy-efficient mortgage is a loan that allows you to finance energy-efficient improvements in the same loan as your home.
• FHA 203(k) loan: An FHA 203(k) loan is similar to a VA renovation loan, but runs through the Federal Housing Administration instead of the VA.
• Fannie Mae HomeStyle Renovation mortgage: A Fannie Mae HomeStyle Renovation loan is another option to get one loan for the purchase and repair costs, operated by Fannie Mae.
• Home equity loan: A home equity loan allows you to get a fixed loan amount, using the equity in your home.
• Home equity line of credit: Similar to a home equity loan, a home equity line of credit allows you to access the equity in your home. But unlike a home equity loan, a HELOC allows you to access (and pay for) the money you need over time. Rocket Mortgage does not currently offer HELOCs.
• Personal loan: A personal loan may be another option to help you finance repair costs. Unlike other options, a personal loan may be unsecured and not require your home as collateral.

The bottom line: VA renovation loans can be a helpful option for those who qualify

VA loans come with many great benefits, and a VA renovation loan can be extremely useful to veterans or current service members looking to make repairs on their current or future home. However, it can be tricky to find a lender that offers them.

Explore the different options that are available to you, whether that is a VA renovation loan, a conventional mortgage, a personal loan, or a home equity loan.

If you decide that a home equity loan is the right choice for you, apply for a home equity loan today.

Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 2/5/2024 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Schwab products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. Not available in Texas. This is not a commitment to lend.