Many buyers want to know if they can use their VA benefit to buy a home that will need deep (non-cosmetic) repairs.
Because the VA requires a home to be move in ready, deep construction / rehab VA loans are not allowed.
However, there is a government insured mortgage program that does allow deep rehab. This program is called the FHA 203K loan.
The FHA 203K loan is perfect for:
- Unfinished construction
- Property Flips (occupancy requirement)
- Condemned Buildings
- Abandonded Property
To qualify for the program, the borrower must put a down payment of 3.5% of the completed (future value) of the property.
The FHA 203K loan allows the borrower to borrow more than the purchase price of the property. The surplus money is not given directly to the borrower. The extra money is held in an escrow account and disbursed as the work is completed or materials are acquired. To prevent abuse of the program, each phase of the work must be signed off prior to the next disbursement.
The program is open to all US citizens and is not restricted to military like the VA loan.
VA Home Loan Centers can assist you in finding rehab properties and/or obtaining financing for a FHA 203K loan.
The max FHA 203K (per property) loan amount is based on the future value after repairs are completed. Certain loan limit restrictions also apply based on geographic area.