25 Feb VA Home Improvement Loans: 9 Things To Know
Understanding how VA Loans for Home Improvement can help you
Every house eventually needs some work- no matter how ‘perfect’ it may be when you buy it. And it’s not necessary to seek a conventional loan to do this, there is a VA loan called a “supplemental loan” that allows you to borrow money specifically for home improvement on the property you bought with your VA home loan entitlement. Some people informally refer to this as a VA renovation loan.
You can even be considered for this VA home improvement loan if you have no remaining VA loan entitlement in certain cases. According to VA Pamphlet 26-7, the VA Lender’s Handbook (Chapter 7):
“If the Veteran has no available entitlement, VA can still guarantee the supplemental loan provided the lender is the holder of the Veteran’s existing loan and the loans are to be consolidated.”
There are some considerations to keep in mind when applying for a VA Supplemental Loan (the term “VA home improvement loan” is sometimes used interchangeably to describe these home repair loans for veterans):
- Only for VA Loans: Those who own a home purchased with a VA Mortgage or those applying for a supplemental loan in conjunction with a VA mortgage to buy the home.
- On-time payments: VA loans for home improvement require the borrower to be current on the existing VA loan (assuming the supplemental loan isn’t applied for in conjunction with a VA mortgage loan to purchase).
- Other uses? VA loan rules in the VA Lender’s Handbook include a very brief mention of another use for this type of VA loan. The loan rules in this area state that, as mentioned above, “…the existing loan must be current with respect to taxes, insurance, and amortized payments, and must not otherwise be in default unless a primary purpose of the supplemental loan is to improve the ability of the borrower to maintain the loan obligation.”
- Interest rate restriction: VA loan rules state clearly that a home improvement loan for veterans / supplemental loan, “can never result in any increase in the rate of interest on the existing loan” (emphasis ours) but be advised, the same section of the VA rulebook also states, “A supplemental loan to be written at a higher rate of interest than that payable on the existing loan must be evidenced by a separate note from the existing loan.” Your supplemental loan / VA home renovation loan CAN feature a higher rate than the original mortgage note under the right conditions.
- 30 year loan term?: VA supplemental loans for home improvement have loan terms of five years if not amortized, and 30 years if amortized according to Chapter 7 of VA Pamphlet 26-7.
- Use these loans for addressing real problems in your home: By definition, these loans are for making improvements in your property’s basic livability. Keep in mind the home improvement loan for veterans rule in the VA Lender’s Handbook which states that no more than 30% of the supplemental loan may be used for “maintenance, replacement, improvement, repair, or acquisition of non-fixtures or quasi-fixtures such as refrigeration, cooking, washing, and heating equipment”.