Home Improvement Loans For Veterans
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Home Improvement Financing Options For Veterans
The VA offers a type of financing known as a home renovation loan that allows homeowners to include the cost of upcoming repairs into the total amount of their new home’s mortgage (or refinance). The VA does not offer home improvement personal loans or home equity loans. Loans are available to Veterans but others may qualify, and applicants from any occupation are welcome to check offers.
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It's important to note that the VA does not originate the loans itself, but it simply insures loans that are administered by various lenders, just like with FHA loans.
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Does the VA give home improvement loans?
Veterans looking for a home improvement personal loan or home equity loan are allowed to pursue these financing options from private lenders, even if they already have an existing VA loan. In order to access the best rates and loan terms, it may be beneficial to seek membership at a credit union that caters to military and veteran members such as Navy Federal. You should always compare offers before determining one that is best.
What is a VA home improvement loan, and how does it work?
A VA home improvement (or home renovation) loan works by allowing applicants to estimate the cost of their home's necessary repairs and then finance that cost as part of their mortgage. Existing homeowners with outstanding loans can access this type of financing by refinancing.
To obtain a VA home renovation loan, you will need to meet the qualifications and apply for the loan from a bank, credit union, or other lender. Qualified veterans, active duty military, and their eligible family members can obtain a Certificate of Eligibility (COE) from the VA in order to begin looking for financing from the private lender(s) of their choice.
Once you have received your VA home renovation loan, you must comply with the guidelines and restrictions that come with the funds including ensuring that all repairs are VA eligible.
VA renovation loan guidelines
Veterans, active duty military, reservists, and their qualified family members can take advantage of flexible VA lending guidelines including no minimum credit score, no down payment requirement, and no mortgage insurance. Although there is no credit score threshold, applicants with a credit score of 620 and above will receive access to the best rates. Lenders typically also like to see at least a 41% debt-to-income ratio.
The only restrictions with a VA renovation loan are when it comes down to the home repairs themselves. All proposed renovations must meet the VA's minimum property standards and are subject to final inspection once the work is complete.
Interested parties must apply for a Certificate of Eligibility (COE) through the VA or a VA lender.
Best home improvement loans for veterans
Veterans have a number of options for home improvement financing, including several options not available to the general public that are backed by the U.S. Department of Veterans Affairs.
The VA home renovation loan is one of the best home improvement loan options for veterans and is insured by the VA. This loan allows applicants to fund their home renovations at the start of their home's mortgage or during a refinance. Instead of taking out an additional loan such as a home equity loan or a personal loan, a home renovation loan allows consumers to take advantage of one single monthly payment and pay back their home improvement project costs over a much longer period of time.
While the FHA offers a similar type of home renovation loan known as the FHA 203(k) loan, there are several advantages of using the VA for your home renovation loan. This includes lower interest rates, little to no down payment required, and no private mortgage insurance.
Veterans can also consider taking out a home equity loan, home equity line of credit, personal loan, or credit card from a credit union that caters to active duty military and veteran members.
Let's take a look at some options in more depth.
VA cash-out refinance
A cash-out refinance allows homeowners to take out a new mortgage for a larger amount than their previous mortgage. They can take out money based on the equity in their home.
A cash-out refinance can be a great option for those wanting to access their home's equity to pay for home improvement projects without having to take out an additional form of financing. With a cash-out refinance, the cost of renovations is spread out over a longer period of time, keeping monthly payments low and affordable. Interest rates are typically lower than other forms of financing as well. If interest rates have dropped significantly since your original loan, a cash-out refinance can make a ton of sense. The disadvantage of a cash-out refinance is that you will be committing to a larger mortgage balance and monthly payment that you will be repaying for the next 30 years.
Other options for home improvement financing such as personal loans and credit cards allow the borrower to repay the balance over a much shorter period of time and get out of debt sooner. The answer of which option is better for you is a matter of personal preference.
VA renovation loan
VA renovation loans are a great way to finance the cost of eligible home repairs and renovations by rolling up the costs of the home improvements into your VA mortgage.
It's important to note that the funds received from a VA renovation loan cannot be used for cosmetic upgrades, and all work must be approved prior to competition.
VA renovation loans are offered through approved VA lender partners and are backed by the U.S. Department of Veterans Affairs. Advantages include no minimum down payment required, no private mortgage insurance, and no minimum credit score requirement.
VA loan for energy efficiency
If you are looking to make your home more energy efficient, the VA offers financing for eligible energy efficiency improvements such as windows, insulation, and other renovations. Qualified applicants can roll these costs into either their new home loan or their refinancing loan through the VA. This program is known as the VA Energy Efficient Mortgage (EEM).
Another form of VA-backed loan known as a cash-out refinance can also provide qualified applicants with the cash that they need to perform necessary repairs and energy upgrades.
Other financing options not offered through the VA include home improvement personal loans, home equity loans, credit cards, and home equity lines of credit.
Supplemental VA loans
Supplemental VA loans allow applicants to take out a loan for non-cosmetic home repairs and upgrades that are "primarily to the maintenance, replacement, improvement or acquisition of real property."
A supplemental loan can only be originated as an add-on to an existing VA loan. Veterans who are looking for home improvement financing on a property that does not have an outstanding VA-insured loan will need to look elsewhere for a different type of financing. The borrower must also be current on the repayment of their existing VA loan.
These loans can be structured as an amortizing loan (which requires the regular repayment of principal and interest) or a non-amortizing loan (which allows interest-only payments for the first 1-5 years with a lump sum payment at the end of the loan term).
In most cases, taking out VA supplemental loans will require a home appraisal, and applicants are subject to strict eligibility requirements. Not all property repairs will be eligible for coverage.
However, if you don't want to refinance your home with a VA home renovation loan or take out equity using a cash-out refinance, a supplemental VA loan gives you another way of doing business. Talk to your current VA approved partner lender about taking out a supplemental loan for your home improvement projects.
VA home renovation loan alternatives
If you don't qualify for a VA home renovation loan or prefer to use a different type of financing, there are several other ways to finance your home renovations that are not through the VA.
For starters, the FHA also offers another type of government-backed renovation loan known as the FHA 203(k) loan. Just like with the VA home renovation loan, the cost of eligible repairs is rolled up into the total of the mortgage at the time of purchase or refinance. All improvements must be done by a licensed contractor, approved by an FHA appraiser, and completed within 6 months. Applicants for FHA 203(k) loans are still subject to closing costs, down payment requirements, and private mortgage insurance (or PMI). While this loan is a great option for many homeowners, if you are eligible for the VA home renovation loan, you should take advantage of the opportunity to avoid having to pay a down payment and PMI.
Other home renovation loans include the Fannie Mae Homestyle loan, Freddie Mac CHOICERenovation Loan, and the USDA Rural Development Home Repair Loan.
Aside from these renovation loans, there are a few other types of financing as well.
Veterans with a service-related disability may also benefit from a Specially Adapted Housing grant (SAH) to make improvements to a home they are purchasing or refinancing.
One of the most popular ways to pay for home improvements is to take out a home equity loan or a home equity line of credit. Both of these options use your home's equity to secure your financing and get you access to the funds you need. Unlike a VA or FHA backed loan, the funds are typically not subject to any restrictions or scrutiny. Best of all, homeowners typically save a significant amount of money on interest compared to unsecured loans and credit cards. In fact, the interest you pay on the balance may even be tax-deductible.
Another common choice of many homeowners is to use a personal loan or home improvement loan to pay for the cost of repairs. Personal loans are a type of installment loan that offers quick access to cash in amounts up to $100,000. Interest rates are typically lower than credit cards, though not as competitive as equity-based forms of financing. These loans can be a great way to fund your home renovations without all of the red tape associated with government-backed loans and secured forms of financing. Personal loans are usually funded within 1-2 business days, although funding times can vary.
Lastly, homeowners can always use credit cards and retailer financing to pay for the cost of their home improvement projects. Both labor and materials can be covered by these two options.
To summarize, here is a list of alternative ways to finance home improvements:
FHA 203(k) Loan
Fannie Mae Homestyle Loan
Freddie Mac CHOICERenovation Loan
USDA Rural Development Home Repair Loan
Specially Adapted Housing grant (SAH)
Home equity Loan
Home Equity Line Of Credit (HELOC)
Personal Loan aka Home Improvement Loan
Does USAA do VA renovation loans?
The United Services Automobile Association (USAA) serves millions of military members and their families with a variety of financial services including insurance, banking, and credit cards.
USAA is one of many VA-approved lenders who offer VA mortgages and refinances, although it appears that VA renovation loans are not offered at this time.
You may be able to take out a personal loan, a cash-out refinance, or a home equity loan or line of credit through USAA that can be used for home improvement costs.
Another alternative is to become a member of a private credit union such as Navy Federal that also offers exclusive membership to active duty military, veterans, and their families.
Can you use a VA loan for a fixer-upper?
Many people want to know how they can obtain financing for the necessary repairs to a run-down property at the time that they purchase it. These loans are sometimes called rehab loans or renovation loans and include VA renovation loans and FHA 203(k) loans. They are structured as a mortgage and allow applicants to "add on" the costs of their home improvement projects.
A VA renovation loan is the perfect choice for financing the purchase of a fixer-upper. Homeowners can use the funds for necessary home repairs and benefit from rolling up the costs of the renovations into one single home loan with a manageable monthly payment.
With a VA renovation loan, repairs are subject to approval and cannot be cosmetic in nature.
Does VA offer home equity loans?
While the VA itself does not administer or insure their own home equity loans, you can still access equity-based financing options not backed by the U.S. Department of Veterans Affairs.
Many banks, credit unions, and even online lenders offer home equity loans and home equity lines of credit to homeowners with at least 15-20% equity in their home. As long as you qualify, the VA does not prohibit homeowners from taking out home equity loans or lines of credit from another lender while they have an outstanding VA mortgage.
In addition, the VA does offer another type of equity-based financing known as a cash-out refinance loan. This type of loan allows homeowners to take out a new mortgage and receive up to 80% of their home's equity in cash as a lump sum cash payment.
For example, if your home is appraised at $250,000 and your existing mortgage has a remaining balance of $150,000, you have $100,000 of equity in your property. If you decided to take out 50% of that amount in cash, you will receive $50,000 and your new loan will be $200,000.
Many borrowers prefer to use a cash-out refinance over a home equity loan because it does not require taking out a second mortgage. In most cases, interest rates are also lower. However, closing costs can be higher and you may not be able to access as much cash.
How to apply for a VA home improvement loan
Veterans, active duty military, reservists, military spouses, and other family members can take advantage of home improvement loans backed by the U.S. Department of Veterans Affairs.
The VA does not administer any loans itself, but instead partners with private civilian lenders who provide the financing. However, applicants must work with the VA to prove their eligibility.
You must also qualify for the loan, which typically includes meeting minimum credit score and income requirements. These qualifications can vary from lender to lender. Applicants are also subject to at 0.5% to 3.6% VA funding fee.
These days, most applications take place entirely online, and notice of your loan decision should come within a few business days. You may need to provide proof of your income, employment history, address, and credit history as well as proof of your VA eligibility.
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