In this article, we’ll help you navigate the process of buying a fixer-upper using a VA loan, as well as provide the steps and tips you should take when buying a rehab property.
Key Takeaways
- The VA offers a specific type of loan, known as a VA renovation or rehab loan, that allows you to finance both the home purchase and repairs.
- Not all fixer-uppers qualify for VA loans. Repairs must meet the VA’s Minimum Property Requirements (MPRs), and major structural work may not be covered.
- There are clear steps to buying a fixer-upper with a VA loan, including establishing a realistic renovation budget and finding VA-approved contractors.
Can You Buy a Fixer-Upper with a VA Loan?
Yes, you can use a VA loan to buy a fixer-upper, and there are specific loan types designed for this purpose. But it’s important to note that not every property will qualify and not every lender offers the type of loan you’ll need to do it.
A VA rehab loan allows veterans and active-duty service members to finance the purchase of a home and its necessary repairs or improvements. It differs from a traditional VA loan in that it can be used for properties needing repairs beyond small cosmetic fixes.
With a VA renovation loan, you can take care of a variety of repairs, such as replacing floors, adding new insulation and repairing gutters. You can also tackle larger projects, like fixing a faulty roof, upgrading electrical systems, modernizing a bathroom or remodeling a kitchen.
Major structural repairs and luxury upgrades, such as installing a swimming pool or major landscaping, may not be eligible.
The VA also requires that the home meet Minimum Property Requirements (MPRs), meaning the home must be safe, sound, and sanitary before it can be financed with a VA loan.
Note: If the property you’re considering as a fixer-upper only needs minor work and passes the VA’s MPRs, you could potentially get a traditional VA loan.
How to Buy a Fixer-Upper with a VA Loan
Buying a fixer-upper with a VA loan involves a few key steps. Here’s a breakdown of the process:
- Get Pre-Approved for a VA Renovation Loan. Start by finding a VA-approved lender that offers VA renovation loans and applying for one. This will help you determine how much you can borrow and ensure you’re eligible to use your VA benefits.
- Find a VA-Savvy Real Estate Agent. Look for an experienced agent who understands VA loans and can help you find fixer-uppers that qualify. They should also be familiar with the VA rehab loan process.
- Identify a VA-Eligible Fixer-Upper. Search for homes that meet the VA’s Minimum Property Requirements. Properties that need cosmetic or structural repairs should still be fundamentally safe and sound.
- Get Estimates From VA-Approved Contractors. Once you’ve found a property, get quotes from a VA-registered contractor to provide an estimate for the necessary repairs. Make sure the contractor has a VA builder identification number and that the repairs will meet the VA’s guidelines. This means that you’re not allowed to do the repairs yourself, often referred to as “sweaty equity”.
- Submit Loan Paperwork and Contractor Estimates. Your lender will provide you with a list of items needed for your loan. Along with the typical paperwork needed for a VA loan, you’ll also need to submit contractor plans and estimates detailing the repairs. Submit these items to your lender.
- Get a VA-Certified Appraisal. Your lender will request an appraisal through the VA. The appraiser will determine the value of the house once renovations are completed. You can borrow up to that amount, or the sales price of the home plus estimated repairs, whichever is lower.
- Close on the Home. After the loan is fully approved, you can close on your home loan. The funds for repairs will be placed in escrow, and the contractor will be paid as the work progresses.
- Final Inspection. All construction must be completed within 120 days of your closing date. A VA appraiser will come back to reinspect the completed projects and confirm they adhere to VA guidelines.
Questions to Ask Yourself in the Process of Buying a Fixer-Upper
Many VA homebuyers aren’t aware that the VA offers specific loans for fixer-uppers. But before moving forward with purchasing a fixer-upper using a VA loan, it’s important to know the answers to a few key questions to ensure you’re prepared for the commitment.
What Should I Look for When Buying a Fixer-Upper?
Here are some important considerations when purchasing a fixer-upper, including some potential red flags.
Good Signs:
- Solid foundation with no major structural damage
- Roofing in decent condition, with no leaks
- Good neighborhood with rising property values
Things to Avoid:
- Major foundation issues or significant structural damage
- Extensive mold, pest infestations, or water damage
- Homes located in declining neighborhoods
What Will My Budget Look Like?
When buying a fixer-upper, it’s important to carefully budget for both the purchase and the renovations. The VA loan will cover the purchase price of the home. Then, the renovation costs will be added to the total loan amount.
Consider the following when creating your budget:
Cost of repairs. Obtain detailed estimates from VA-approved contractors.
Unexpected expenses. Consider setting aside an additional 10-15% for unforeseen costs.
Personal savings. Be aware that some items may not be covered by your VA rehab loan. Avoid underestimating the cash you may need to supplement the loan for non-covered items.
Closing costs. While VA loans, including VA rehab loans, don’t require a down payment when you have enough entitlement to cover the loan amount, you’ll still likely need to budget for closing costs.
How Should I Prepare to Manage This Project?
Managing a fixer-upper project requires organization and planning.
- Set a clear timeline with your contractor for each phase of the renovation.
- Keep track of all expenses to ensure you’re staying within your budget.
- Schedule regular check-ins with the contractor to monitor progress.
- Be flexible and expect delays, especially when dealing with permits or unforeseen issues.
- Communicate with your lender about the payment schedule for completed work.
Where Will I Live When Renovations Are Happening?
Depending on the extent of the repairs, you may need to find temporary housing while your fixer-upper is being renovated. Some options, ranked from most affordable to most expensive, include:
- Stay with friends or family: Cost-free if you have a place to stay nearby.
- Rent a short-term apartment: Typically costs between $1,000 and $2,500 per month, depending on location.
- Extended stay hotels: Prices can range from $50 to $150 per night, making it an expensive but flexible option.
- Rent an Airbnb: Prices vary widely but could be a more comfortable and longer-term solution, costing anywhere from $1,500 to $4,000 per month.
The Military Wallet offers some great discounts to veterans in need of hotel accommodations.
Is Buying a Fixer-Upper a Good Investment?
Buying a fixer-upper can be a great investment, but you should carefully consider both the pros and the cons.
Pros
- Fixer-uppers are often cheaper than move-in-ready homes.
- Having repair costs rolled into your mortgage is typically less expensive than financing them on a credit card or personal loan.
- You may be able to build significant home equity after renovations.
- You have the freedom to design and renovate the home to your preferences.
- No down payment is required (although there can still be closing costs).
Cons
- Repairs can be more expensive than initially estimated.
- Renovations may take longer than planned, delaying your move-in.
- VA loans may not cover all desired repairs or upgrades.
- The maximum renovation amount is often capped at $50,000.
- You can’t use this type of loan for an investment property or vacation home — only primary residences you plan to live in.
- You can’t do the work yourself.
VA Eligible Contractors
Finding a VA-eligible contractor is required when purchasing a fixer-upper with a VA loan. The contractor must be licensed, insured, and approved by the VA to ensure the work meets the required standards.
To find a VA-approved contractor, ask your lender for a list of VA-eligible contractors in your area. You can also search for VA contractors databases online or through veteran service organizations.
If you have a contractor in mind but they aren’t registered and approved, your contractor will need to obtain a VA builder ID. They can do so by submitting the following forms:
- Builder information and certification on builder’s letterhead
- VA Form 26-421 (Equal Employment Opportunity Certification)
- VA Form 8791 (VA Affirmative Marketing Certification)
- Builder’s license, if applicable according to state and local authorities
It’s important to note that your contractor must meet specific thresholds, including experience and certifications, in order to be eligible for VA projects. Always ensure you’re working with professionals who understand VA loan requirements and can complete the work according to VA standards.
Buying a fixer-upper with a VA loan can be a rewarding experience if you carefully plan your project, understand your loan options, and manage the renovation process effectively. With the right approach, you can turn a fixer-upper into your dream home, all while leveraging your VA eligibility.
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