Buying a Fixer Upper with a VA Loan: A Complete Guide for Servicemembers and Veterans

Buying a fixer upper home can be an attractive option for military servicemembers and veterans looking to purchase a home using their VA loan benefit. Fixer upper properties often sell at a discount compared to move-in ready homes, allowing buyers to get more house for their money. With a VA renovation loan, buyers can roll the cost of repairs and renovations directly into their mortgage.

However, purchasing a fixer upper also comes with risks and challenges that borrowers need to be prepared for. This comprehensive guide covers everything military homebuyers need to know about using a VA loan to buy and renovate a fixer upper property.

What is a Fixer Upper?

A fixer upper refers to a home that needs maintenance, repairs, or upgrades in order to be fully functional and livable. Common issues with fixer uppers may include:

• Outdated or damaged finishes like flooring, cabinets, countertops
• Old or faulty plumbing, electrical, HVAC, and roofing systems
• Structural problems like sagging floors or foundations
• Lack of proper insulation or windows
• Neglected landscaping and exterior maintenance

Fixer uppers range from minor cosmetic fixes to significant structural renovations. Knowing your DIY skills and budget is key to taking on the right fixer upper project.

Using a VA Renovation Loan

The main loan option for buying and fixing up a home with a VA loan is called a VA renovation or repair loan. This program combines the loan amount for purchasing the property with additional funds for renovations into a single mortgage.

Benefits of a VA Renovation Loan

• Requires no down payment like a standard VA loan
• Offers low interest rates
• Does not require mortgage insurance
• Can be used for purchases or refinances

VA Renovation Loan Guidelines

Here are some key requirements borrowers need to meet to qualify for a VA renovation loan

• Eligible veterans must have full entitlement available
• Must be owner-occupied primary residence
• Maximum renovation amount allowed is $35,000
• Repairs must be completed within 6 months
• Only permitted renovations can be financed

Talk to a lender specializing in VA loans to learn more about specific renovation loan requirements.

Assessing Your Fixer Upper Project

Before shopping for the right VA mortgage, take time to fully evaluate potential fixer upper projects. Consider the following:

Your Skills and Budget

• What DIY projects can you realistically take on?
• What will need to be contracted out? Get quotes from contractors.
• Make an itemized renovation budget and stick to it. Projects often cost more than expected.

Scope of Renovations Needed

• Cosmetic updates like flooring and paint are simpler.
• Electrical, plumbing, roofing etc require expertise.
• Structural work like foundations is highly complex.

Home Inspection Findings

• Thoroughly inspect the property and identify all necessary repairs.
• Look for signs offoundational, water, mold, and pest damage.
• Make repairs a contingency in your offer.

Only take on what you can actually afford, finance, and manage based on your skills and timeline.

Financing Fixer Upper Renovations

If a VA renovation loan won’t work for your project, you have other financing options including:

• VA cash-out refinance – Refinance your current home and withdraw equity for renovations
• FHA 203(k) renovation loan – Finance up to $35,000 in repairs even with 3.5% down
• Home equity loan – A second loan using existing home as collateral
• HELOC – Revolving line of credit also using home equity as collateral
• Personal loan – Unsecured loan typically with higher rates

Compare all features including rates, fees, loan amounts, and eligibility to pick the right renovation loan for your needs and financial situation.

Buying Below Appraised Value

One strategy to maximize your renovation budget is to purchase the home below its appraised value. For example, if the home appraises for $200,000, offer $175,000 giving you $25,000 for renovations.

However, the seller must agree to the lower price. Make your offer attractive by:

• Making a cash offer with flexible closing timeline
• Waiving contingencies like the appraisal and home inspection
• Paying closing costs

In a hot market, sellers may still get multiple offers at or above asking price. So temper expectations if demand for fixer uppers is high.

Using Sweat Equity

“Sweat equity” refers to increasing a home’s value through your own labor and skills. Take on DIY projects like:

• Painting
• Landscaping
• Minor plumbing and carpentry work
• Installing new fixtures and flooring

This allows you to complete more renovations and build equity without taking on more financing. But don’t overestimate your abilities either when deciding which projects to take on yourself.

Hiring Contractors

You’ll likely need to hire contractors, especially for structural, electrical, and HVAC work. When getting bids and selecting contractors:

• Verify licensing, insurance, and bonding
• Ask for referrals from friends and neighbors
• Review examples of past work and visit active job sites
• Get at least three quotes for comparison
• Check ratings on Angi and the Better Business Bureau
• Require detailed scopes of work and payment schedules in the contract

Carefully researching and vetting contractors helps ensure renovations go according to plan.

Completing Repairs On Time

Sticking to the renovation timeline is critical when using a VA or FHA renovation loan. Typical completion deadlines are:

• VA renovation loan – 6 months
• FHA 203(k) loan – 6 months
• FHA limited 203(k) – 3 months

If repairs aren’t finished on schedule, you risk being in default on the loan. Build contingencies into contractor timelines and closely oversee their progress through completion.

Evaluating Fixer Upper Risks

While fixer uppers offer potential cost savings and customization, they aren’t for everyone. Consider if you can take on these common risks:

• Total rehab costs exceed budgets
• Discovering undetected property defects
• Delayed contractor timelines
• Not recouping full value of renovations

Mitigate risks by budgeting generously, inspecting thoroughly, planning carefully, and working with reliable professionals. But also be prepared in case unexpected issues still arise.

Is a Fixer Upper Right for You?

Buying a fixer upper with a VA loan can enable military homebuyers to afford more home over the long term. But also weigh factors like your renovation experience, risk tolerance, and how long you plan to stay in the home. In many cases, investing in a move-in ready home may be the smarter choice.

Thoroughly explore all your real estate and financing options. Know the full scope and costs of needed renovations. And carefully consider if you can manage the project to successful completion. If so, buying a fixer upper could allow you to create your dream home and build substantial equity.