Some VA borrowers want to know if there is a VA guaranteed loan for home improvements. A common version of this popular question goes something like this:
"We own our home and do not owe any more mortgage payments. Can we get a loan for home improvements. For example, paint, carpet, and floor repairs, etc.?"
For VA cash-out refinancing loans, the rules are clear. Borrowers who have first liens are permitted to apply for cash-out VA refinancing loans and use the money back for any purpose "acceptable to the lender" and that could include home improvements. The borrower must have a "first lien" or mortgage on the property in order to apply for refinancing. The rules state you can't refinance on a property that has no first loan to refinance.
VA rules for cash-out refinancing are found in Chapter Six of the VA Lender's Handbook:
"A cash-out refinancing loan is a VA-guaranteed loan that refinances any type of lien or liens against the secured property. The liens to be paid off may be current or delinquent, and from any source, such as tax or judgment liens, or VA, FHA, or conventional mortgages. Loan proceeds beyond the amount needed to pay off the lien(s) may be taken as cash by the borrower for any purpose acceptable to the lender. The loan must be secured by a first lien on the property."
So for homeowners who own their property outright, a VA home loan isn't an option. There also isn’t much of a path for veterans who want to buy a fixer-upper and borrow additional funds to improve the property. In those cases, veterans and military buyers might learn more about the FHA’s 203k loan program, which does allow for building in additional money for rehab.