VA Renovation Loan Options for Home Improvements

A VA renovation loan rolls the cost of repairs into a VA mortgage or VA cash-out refinance.

VA loans make homeownership possible for thousands of veterans and military service members every year. These loans have no down payment or mortgage insurance and often have lower mortgage rates than other home loans.

Besides those well-known benefits, you can also use a VA loan to buy a fixer-upper or renovate your current home.

» MORE: Learn the basics of VA loans

Types of VA renovation loans

There are multiple options for VA borrowers to pay for home improvements.

VA renovation loan

A VA rehab and renovation loan allows you to buy or refinance a home and roll the cost of improvements into your mortgage. This is best suited to borrowers who don’t have an original VA mortgage that they want to retain and who want only one loan.

Pros of a VA renovation loan:

• Greater flexibility when shopping for a fixer-upper. Unlike a typical VA loan, you’re not limited to homes that meet the VA’s minimum property requirements. These are technical standards outlined in the VA handbook, which include must-haves such as drainage and electrical connections that make the home adequately livable. You can use a VA renovation loan to bring the home up to the standards of the Department of Veterans Affairs.

• You may be able to borrow more than you can with other types of loans, as the maximum loan amount will be determined by the expected value of the home after repairs are completed. This value is determined by a VA appraiser. 

Cons of a VA renovation loan:

• This kind of loan can be difficult to find; even lenders that specialize in VA loans may not offer VA renovation loans. You’re obligated to use a VA-approved contractor, which limits your options. 

• Not all projects are allowed. With a VA renovation loan, all work must improve livability and safety, meaning that while a new roof would qualify, new cabinets to modernize the kitchen likely wouldn’t. 

The home will also have to pass a VA appraisal and inspection. If the loan is a refinance, you’ll have to have owned the home for at least one year.

VA cash-out refinance

If you own a home and owe less on your mortgage than your home is worth, you might be able to tap into the home's equity with a VA cash-out refinance. You can use the cash-out money for any purpose, including home improvements. You can refinance a conventional or FHA loan into a VA-backed mortgage with this option as well.

Like with VA renovation loans, this option is suited to borrowers who prefer to finance homeownership and repairs with one loan. Cash-out refinances make sense when rates have come down since you got your current mortgage; if they’ve gone up, this is probably not your best option.

Pros of a VA cash-out refinance:

• You’ll get a new rate and terms for your mortgage, an advantage if the new interest rate is lower than your original rate. 

• They’re more common and easier to find than VA renovation loans. You can explore lenders and compare VA refinance rates and fees here. 

• You have total freedom when it comes to how you use the money. Unlike with a VA renovation loan, you can make cosmetic changes and upgrades to the home as you wish. 

Cons of a VA cash-out refinance:

• Your maximum loan amount is limited to a percentage of the value of your home. Unlike with a VA renovation loan, the lender won’t take into account any anticipated growth in value from your home improvement project. 

• You can’t take out additional cash after the loan has closed, meaning it’s ideal to know exactly how much you’ll need before embarking on your project. If you don’t know what you’ll need, such as if you’re completing a series of projects, you may be better served by a flexible line of credit. 

• You must be at least 210 days out from the first payment on your VA loan before you can refinance. 

VA loan for energy efficiency (EEM)

You can finance the cost of energy efficiency improvements by adding an Energy Efficient Mortgage (EEM) to your a VA purchase or refinance loan. Eligible improvements include things like thermal windows, insulation and solar heating or cooling systems. This loan is typically capped at $6,000.

Disability housing grants

Projects that make the home more livable for a disabled resident may be financed with a Special Home Adaptation Grant (SHA) or a Specially Adapted Housing Grant (SAH).

To qualify for a Specially Adapted Housing Grant, the borrower must own their home and have a service-connected disability. The borrowing limit is $117,014 for 2024. In some cases, rules restricting the number of total grants per year will apply.

Special Home Adaptation Grants have a smaller limit of $23,444 for 2024, but you don’t have to be the homeowner. If you’re a veteran or service member with a service-connected disability, this grant can be used to finance accessibility projects for a home owned by either yourself or a family member with whom you’re permanently living.

Home renovation loan alternatives

You don’t have to limit yourself to VA loans for home improvements. Here are other options to buy a fixer-upper or finance repairs of your current home.

• A home equity loan or a home equity line of credit, known as a HELOC. If your home is worth more than you owe on your primary mortgage, you can borrow against some of the difference with a home equity loan or HELOC.

• An FHA 203(k) loan. An FHA 203(k) loan lets you buy or refinance a home and roll the renovation costs into the mortgage.

• A conventional home renovation loan. The Fannie Mae Homestyle loan is similar to the FHA 203(k) loan, but credit score requirements are stricter and rules about renovation work are more lenient. The Freddie Mac CHOICERenovation loan also lets you roll the costs of home improvements into the mortgage, so long as renovations are completed within about a year of getting the loan.