Yes, you can purchase a fixer-upper with a VA loan. There are Veterans Affairs rules on structural and cosmetic repairs. Budgeting and time are essential to consider.
When buying a home that has needed repairs and you want to use your VA loan benefits, remember it will be a process. First, you will need to look at your current needs as a military member and where you are in your move. You will need to find a property and understand the required upgrades. You can work with your realtor to negotiate necessary seller-funded repairs and then start looking at options for what you would be willing to fix once you own the property.
Keep in mind that the VA restricts what can be purchased when it comes to assuming necessary repairs on a property. This is where cosmetic and structural repairs need to be defined. A good understanding from start to finish of what it takes to buy a fixer-upper is essential; let’s dive in!
Can I Get a VA Loan for a Fixer-Upper?
The basic answer is yes, but how much of a fixer-upper are you allowed to take on? Let’s break down some terminology and workflow to ensure that you consider all of the work, resources, and time needed to complete the fixer-upper using a VA loan to get the mortgage.
How to buy a fixer-upper: considerations for military buyers
Fixer-uppers can be a great way for military members to get into their first home while possibly saving thousands by signing up to do what military members do best, make it work and put in the hard work to fix it up! If you want to fix it up to meet your standards or exceed the next owner’s expectations, let’s be reminded that military members are busy. This is why planning when long-term projects are taken on is vital. Items to consider include long times away from home, deployments, nightshift limiting your access to stores in the middle of projects, permanent change of station orders that come out of nowhere, and all of the other crazymakers we have all experienced. With the strength to acknowledge and overcome these possible issues, military members can absolutely get themselves into a great position buying a property with their VA loan and successfully turning that fixer-upper, single-family home, duplex, or condo into an amazing investment property or cash-maker when they sell it!
What to look for when buying a fixer-upper home using a VA Loan
Understanding your limitations when buying a property that needs work is key to using your VA loan to execute a purchase on a fixer-upper.
Cosmetic improvements and repairs are authorized when using a VA loan, but structural changes can be more complicated when trying to close a VA loan. I don’t like to say never, but for this particular circumstance, you need to understand the difference between cosmetic and structural because you will not want to waste time getting under contract on something that will not pass the VA appraisal process. Below are the general guidelines for what is cosmetic and what is structural.
Cosmetic repairs are typically but not limited to: (this is allowed when using the VA loan)
- Kitchen cabinets remodel
- Bathroom Remodel
- Paint
- New doors
- New windows (upgrading)
- Water softener installation
- Closet remodeling
- Countertops
- Ceiling fans
Structural repairs are typically but not limited to: (this is not allowed when using the VA loan)
- Foundations
- Roofs
- Structural subfloors
- Columns and beams
- Weight-bearing walls
- Added structures (ex: Carports, converted garages without permits)
Factor in the additional costs
Additional costs to the new borrower or homeowner should be considered and added to the budget breakdown. When you consider doing renovation projects when you are not local, remember that you may have to travel to the property to check and ensure there are no delays. Depending on where you are coming from,travel costs can put you out anywhere from a couple of dollars for gas to upwards of a thousand dollars to get there with a flight and rental car, hotel costs, etc. Keep in mind that many costs can be put into your budget if you write down every step. Other additional costs can be projects that are discovered during contractor work.
An example would be a bathroom remodel that may need the wiring brought up to code. You may need electrical work. Make sure you ask questions to your contractor to go over a plan for what “might” come up. Do your research, and look up costs other homeowners come across that they were not necessarily prepared for.
Who will do the work?
A licensed contractor is the way to go. When completing the work for a fixer-upper and you cannot complete the work yourself, ensure you have a list of licensed contractors to get quotes from. Having a list of contractors that ensure their work will save you headaches if you ever try to sell or show proof of work on your repair project to the next potential buyer.
Where will you live during renovations?
While trying to get through a renovation in a house, it can sometimes be difficult to live through all of the chaos. When using a VA loan with the intention to live in the home as a primary home in a reasonable amount of time, it will be understood that you may not live in the house on the closing day. If you are preparing to use the VA renovation loans to do your renovation projects, make sure you are using VA-approved contractors to get the cost of renovations. You will need to make sure that you, as a borrower, consider the cost of renovations and make sure you stay in your price range.
Is buying a fixer-upper a good investment?
A fixer-upper can be considered a good investment if the buyer is prepared. Like any large life decision, you need to have a plan for your repair projects. Major renovations are a huge undertaking. Knowing how you will complete them, how much they will cost, and if you use a renovation loan, or construction loan, are just a couple of items you should consider. With a great plan that includes meeting your budget and timelines, a fixer-upper can be a great investment. Give yourself wiggle room when it comes to the budget and timelines because it is true that sometimes there are backups in timelines and discovered costly issues once the work begins.
How to buy a fixer-upper with VA Loan
The way to buy a fixer-upper with a VA loan is to consider all necessary repairs before you dive too deep into the deal. Make sure that you use your inspection time wisely and request more in writing if you need to get quotes or need to have more inspections done based on what you find. Also, communicate with your lender any issues that you believe are structural or more than just the regular cosmetic updates. This will help when it comes to the lender knowing what may come up in an appraisal.
Research your options
When looking into how to complete the work, the two areas of focus should start with the budget and timeline. The budget should consider what type of money and what form you will use to cover the purchase. Construction loans, VA rehab loan, VA renovation loan programs, cash, and home equity loan on other properties are a couple of different types of money sources to consider when you are trying to budget for your renovation costs.
Get pre-approved for a VA loan.
Getting pre-approved for a VA loan starts with you and a lender! Lenders will allow you to submit an application that will, upon initial review, show them what your credit and financial situation are. This will lead to the lender being able to tell you what you qualify for when it comes to the purchase price of your new home.
Make sure you get your budget right.
You must work hard to get your budget right. This is more key than anything else when purchasing a home and trying to do a renovation project. It adds just another layer of work. Do not skip this step, and also don’t do what “you think” it might cost; actually, go and get quotes from professionals and look up the actual cost of items you can do yourself.
Buy a home
Buy that home! Consider the price for renting vs. purchasing a home. If the numbers work, you will save money upfront or even be in a position to acquire an investment property and continue down the path to buying that home. If you need to move onto another property because you don’t have the money to fix it up. If you are not qualified or interested in taking out a loan to buy a fixer-upper, continue to run the numbers because there may be a property that is move-in ready that monetarily makes sense waiting for your offer. Do not give up if your fixer-upper offer doesn’t go through, continue your search.
Get your new home inspected.
Use the inspection report to identify what you need to replace and or repair. Have a template to put all necessary work together so you can have multiple contractors look at each item and give you quotes. It will also be important to ask the contractors what their timelines are, and you will need to ensure that the timeline you have will work with what the contractor can deliver.
Make a renovation plan.
Buyer or seller, who is responsible for the structural repairs?
Ultimately, the buyer and the seller will need to come up with a plan on who is responsible for the necessary repairs for any house that is changing hands. The wonderful thing in the market today is housing sales have slowed down in many parts of the country, so there is more time to talk through and plan who will make what repairs. Let’s get into what is allowed to go through as an unfixed item on a home where the buyer is using a VA loan. We will also dig into the details about how to plan for changes that will need to be made to the house when it comes to renovation and non-structural repairs. It is extremely important to remember that a solid plan is a way to go when trying to purchase a home that starts off already needing some repair because, ultimately, the VA wants to protect Veterans from getting into a house that is uninhabitable and or not safe for them and or their families.
Manage construction
The bank will be provided a review and report by the appraiser. For a VA loan, remember that it is not waived even if the seller or buyer has an appraisal that they went out and paid for. The lender is required to use a VA-approved appraiser because these appraisals are specific to the VA regulations when it comes to the allowed and not allowed conditions of a house. The appraiser is typically a final passthrough for the buyer and seller to get through. The buyers and sellers should have, in most cases, already identified with a home inspection or known issues about how all repairs will be made and who pays for them.
Pay for a home appraisal.
The appraiser will sometimes identify items that they will mark as “subject to repair.” In this case, if an item is “subject to repair,” the buyer will need to have their realtor go back to the seller and let them know there is something that must be fixed for the appraisal to pass and the loan to go through. These “subject to repairs” can be anything from a wall needing a patch, exposed wood on a garage door needing to be painted, to serious structural damage needing to be repaired. It is up to the VA-certified appraiser to ensure that they check for all VA loan requirements considering mandatory conditions regarding safety, security, and overall sturdiness.
Close on the loan
Closing on the loan comes after all application criteria are met with the lender and their underwriting team, along with all items on the appraisal being completed and the property being reinspected. That is an essential part of the deal to get you to closing. Make sure that your realtor lets the lender know when the work will be completed for anything that has to be completed for the appraisal. Alerting the lender when it is ok to have the appraiser come back out to verify work will be helpful to ensure less delay in closing.
Once all of your items are checked with the lender, you will get your closing disclosures to review, and then you will sign for your new property!
Move-in!
Moving day is always an amazing time. With a fixer-upper, one may not move on the day of closing, but it is surely right around the corner. Make sure that you are ready to cover your moving costs and that your timelines are flexible by a day or two if contractors are finishing up the last bit of details. Lastly, if you took out a loan to cover the renovations for your fixer-upper, reread all of the mandatory details and terms of your loan. Make payments on time and enjoy your new fixed-up property!
ADPI Pro Tip
- Once you get through the inspection process, let your lender know if there are any large issues that need to be corrected so they can let you know their opinion on if they will be a showstopper for the appraiser. Knowing that the house will not get through the appraisal process is key to figuring out if the seller is willing to pay for the fix. Until you have it in writing that the seller will pay for the fix and it can be completed prior to closing, do not waste your money on an appraisal.
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