Can You Buy an As-Is Home with a VA Loan?

Buying an as-is home can be an attractive option for homebuyers looking to save money or take on a fixer-upper project As-is means the seller won’t make any repairs or upgrades to the home before closing. This allows buyers to purchase the home at a lower price point

But can you use a VA loan to buy an as-is property? The answer is yes, with some limitations

Overview of VA Loans

VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. They are available to eligible veterans, active-duty service members, and surviving spouses. Some key features of VA loans include:

• Require no down payment
• Have competitive interest rates
• Allow gifts to be used toward closing costs
• Don’t require mortgage insurance

VA loans must meet VA minimum property requirements (MPRs) to be eligible. These requirements are meant to ensure the home is safe, sanitary, and structurally sound.

Buying As-Is Homes with a VA Loan

The VA has specific guidelines regarding as-is homes. While they will guarantee loans for these properties, there are a few extra steps involved:

Appraisal

To qualify for a VA loan, an as-is home must first appraise for the purchase price. If the appraisal comes under the purchase price, the seller would need to lower the price or the buyer would have to make up the difference in cash.

Inspection

The property must also pass a VA compliance inspection. These inspections are very thorough, checking for:

• Structural integrity
• Working electricity, plumbing, and heating
• No significant health/safety hazards
• Adequate square footage, room sizes, etc.

As-is does not mean the VA will ignore major issues. Their inspectors will still flag any deficiencies needing repair.

Lender Requirements

Some VA lenders have overlays for as-is homes, meaning they require repairs above and beyond the VA guidelines. Common lender requirements include:

• Termite inspections
• Sewer line inspections
• Upgraded electrical panels
• Newer roofs
• HVAC systems less than 10 years old

Repairs

For any issues found, the seller will need to make the necessary repairs prior to closing. Or, the buyer can negotiate a repair credit to complete the fixes themselves.

VA loans generally do not allow escrow holdbacks for delayed repairs. All MPR items must be addressed before closing on a VA loan.

Max Financing

Borrowers using a VA loan for an as-is home are capped at the county loan limit for their area. They cannot exceed this amount, even if the home appraises for more.

Tips for Buying As-Is with a VA Loan

If you want to purchase an as-is home with a VA loan, keep these tips in mind:

• Get a thorough inspection from a licensed inspector. Don’t rely solely on the VA appraisal for condition information.

• Research typical lender requirements. Know what kinds of repairs you may have to make.

• Negotiate repairs or credits with the seller. Don’t assume you’ll qualify for 100% financing based on the purchase price.

• Be conservative with your offer. Account for the cost of likely repairs.

• Get repair estimates before closing. You’ll need to know the potential scope and cost of repairs.

• Understand the appeal process. If your lender requires excessive repairs, you may be able to appeal to the VA. But this takes time.

• Discuss contingency plans with your agent. Have a back-up strategy in case the VA appraisal comes in low or required repairs are deal-breakers.

• Consider owner-occupancy requirements. You’ll likely need to move into the home within 60 days and live there for at least a year.

Alternatives to VA Loans

If the VA guidelines are too rigid, you may want to look at other mortgage options:

FHA 203(k) Loan

This FHA-insured loan lets buyers finance purchase and renovations together in one loan. Up to $35,000 in repairs can be rolled into the mortgage. It may be an alternative if you want to finance bigger fixes.

USDA Rural Housing Loan

For rural properties, USDA loans can finance homes needing repairs. Requirements may be less stringent than VA guidelines.

Conventional Renovation Loan

Some lenders offer conventional renovation loans that finance a portion of repairs. Requirements vary by lender.

Cash Purchase

An all-cash offer gives you maximum flexibility and control over repairs. No lender approval needed.

Personal Loan

If repairs are minor, consider a personal loan or home equity loan after closing to finance upgrades.

Delayed Financing

Make a cash offer, then take out a mortgage after repairs are complete to get cash back out.

The Bottom Line

While VA loans can be used for as-is homes, significant repairs may be required. Work with an experienced agent and lender who can guide you through the process. Be ready with contingency plans in case the VA financing falls through. With proper preparation, you can buy your dream fixer-upper, even with a VA loan!