Many military veterans are unsure whether they can use their VA loan entitlement for home improvements. According to the Veterans Administration, veterans who qualify for the VA Home Loan Guarantee Program can finance certain energy-efficient improvements.
Costs of the improvements may be rolled into their new home loans. The VA does, however, have some restrictions in place. One is regarding the types of improvements. Another is the amount that can be borrowed to complete those improvements.
Energy-Efficient Home Improvements
The VA will allow veterans to finance certain energy-efficient improvements so long as they use the money for those improvements. Here is a short list of energy-efficient improvements veterans are allowed to complete by rolling the costs into their new home loan:
• Solar heating and cooling installation
• Storm door and window installation
• Installing energy-efficient insulation
• Purchasing an energy-efficient furnace
• Any energy-efficient improvements that lower the cost of utilities
Veterans can borrow an additional $6,000 on top of the financing needed to purchase a home to complete energy-efficient home improvements without the need for a separate appraisal. For any improvements that are $3,000 or less, the VA does not require any additional documentation except for the receipts for the improvements.
VA Construction Loans
The VA does offer construction loan programs. These allow veterans to acquire and rehab a home or to construct a new home. Applying for a construction loan is the same as applying for any other VA home loan program. However, many lenders in today’s mortgage market are unwilling to approve construction loans. Although a veterans’ VA loan entitlement guarantees the VA will back the home loan, the lender still must approve the loan. Many veterans are unaware the VA does not provide the actual financing but provides insurance to lenders in the event borrowers default on their mortgages.
VA Home Equity Loans/Cash-Out Refinances
The VA allows veterans who have first liens on their homes to apply for home equity loans or cash-out refinances. If lenders approve the loan, the money can be used for home improvements. Veterans must have first liens on their homes and do not qualify for cash-out refinances if they own their homes outright. According to the VA’s Lender’s Handbook, a veteran may use their VA loan entitlement to refinance any first lien secured against the property, including conventional mortgages. Any loan proceeds beyond the total needed to pay off the first lien may be used by the borrower for any purpose acceptable by the lender.