VA Home Improvement Loans?
One of our recent posts included a reader question about VA loans for home improvements. The reader asked, “Can we get a loan for home improvements. For example, paint, carpet, and tile floor repairs, ect.?”
As we mentioned in the original blog post, the VA does not guaranty separate, “new purchase” type mortgage loans for home improvements. Eligible borrowers can apply for refinancing loans that either feature additional funds for energy-efficient upgrades to the home, or they can apply for cash-out refinancing loans and use those funds for home improvements.
But chances are good that many readers still want to know why the VA does not guaranty home improvement loans as a stand-alone product.
The answer can be found in the VA loan rules as described in the VA Lender’s Handbook. Chapter Three of that handbook includes a section on eligible VA loan purposes. The guide states, “The law authorizes VA to guarantee loans made to eligible veterans only for the following purposes”, then proceeds to list all the ways you can use a VA mortgage.
Those ways include:
- To purchase or construct a residence, including a condominium or cooperative unit, to be owned and occupied by the veteran as a home.
- To refinance an existing VA-guaranteed or direct loan for the purpose of a lower interest rate.
- To refinance an existing mortgage loan or other indebtedness secured by a lien of record on a residence owned and occupied by the veteran as a home.
- To repair, alter, or improve a residence owned by the veteran and occupied as a home.
- To simultaneously purchase and improve a home.
- To improve a residence owned and occupied by the veteran as the veteran’s home through the installation of a solar heating system, a solar heating and cooling system, or a combined solar heating and cooling system, or through the application of a residential energy conservation measure. These energy efficiency improvement loans can be made in conjunction with any type of VA purchase or refinancing loan.
- To purchase a one-family residential unit in a condominium housing development approved by VA.
- To purchase a farm residence to be owned and occupied by the veteran as a home. If the loan includes the purchase of farmland, the farmland is appraised at its residential value only.
The purpose in bold text, “to repair, alter, or improve…” requires the borrower to have an existing VA home loan that is eligible to be refinanced, or refinance a non-VA loan. The VA does not guaranty stand-alone “new purchase” type home loans for improvements only. Part of this has to do with the rules for VA mortgages–only under limited circumstances (cash-out refinancing, for example) does the VA allow money back to the borrower in a VA loan transaction that is not a refund of some kind.
Refinancing loans are different–cash out loans are underwritten and processed with an appraisal, credit check, and other requirements…and the loan is secured by the property to be refinanced.