If you dream of fixing up your own home, you may think that it isn’t possible with the VA Loan. After all, the Department of Veterans Affairs has a minimum habitability requirement that includes things like running water and flooring. If you have your heart set on a home that needs a lot of work, you still may be able to use the VA Loan to create the home of your dreams.
The Department of Veterans Affairs offers a renovation or rehab loan, similar to conventional rehab loans. It still has the major benefit that comes with the VA Loan, the 0% required down payment.
So does the rehab loan just eliminate the habitability requirement? No, your home will still need to satisfy the requirements but the VA allows for some time (and money) to fix those items before it considers the home done.
When using a VA rehab loan, you will need to work with a licensed general contractor during the loan approval process to make a list of all the items that you want to fix, renovate, or upgrade. The contractor will generate a work list that includes an itemized breakdown of cost for each item. The lender and the Department of Veterans Affairs looks at that list. An appraiser considers what the value of the home would be after the list is complete. As long as the appraised value is at least as high as the loan amount (including the renovation and repair costs provided by the contractor), the loan will be approved.
The contractor does have to submit proof of the work being completed in order to get paid for their work. They will get paid directly from the lender, similar to a builder on a new construction home. They also have to complete the work within a designated time frame.