VA Loan Questions: Rehab Loans
A reader asks, “Question about simultaneous purchase and rehab: although I’ve read in the Lender’s Handbook that a veteran can ‘simultaneously purchase and rehab a home’, it is unclear exactly what “rehab” can be accomplished.
We are buying a foreclosure that will require a garage door new appliances, and we’d like to get new countertops in the kitchen. In a perfect world, we’d also like to build an additional stand-alone garage on the property (its a large piece of land, and a stand-alone separate garage is in keeping with the other properties in the area).
Our current lender’s underwriter says none of this is possible. I’ve spoken to VA reps in Atlanta who say energy-efficient appliances are possible. What is the real answer? Is any of this doable?”
The VA Lender’s Handbook refers to eligible loan purposes, which include the ability to “simultaneously purchase and improve a home”, which is a bit different than purchasing and performing rehab work. What improvements could the borrower add when purchasing a home?
The VA Energy Efficient Mortgage Loan (EEM) allows the borrower to add up to $6 thousand to the VA loan for the purpose of installing VA-approved energy efficient appliances, weatherization features, solar heaters or other items.
The buyer must provide additional paperwork as part of a VA EEM loan, including a cost analysis and benefits sheet that shows how much the improvements will save. An energy consultant may be required and the borrower is reimbursed for the cost of these improvements after they have been installed.
The VA EEM program allows the lender to approve or deny the improvements. According to Chapter 7 of the VA Lender’s Handbook, “The lender must determine that the proposed weatherization and/or energy conservation improvements are reasonable for the particular property.” The rules also add, “The lender must evaluate the veteran’s ability to pay the increased loan payments caused by addition of energy efficiency improvements.”