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Guide to VA Supplemental Loans

For many Veterans, the transition back to civilian life can be challenging, particularly when it comes to finances. Even with various VA benefits, some Veterans may struggle to make ends meet.

Fortunately, VA supplemental loans can provide a helping hand to Veterans who need additional financial assistance. These loans are designed to supplement other benefits and can be used for a variety of purposes, including home repairs, debt consolidation and unexpected expenses.

What is a VA Supplemental Loan?

A VA supplemental loan is purpose-built to help eligible Veterans who already have a VA home loan make improvements or modifications to their homes at a low cost. These loans may be financed as a second mortgage, included in a loan refinance or added to a borrower’s existing mortgage.

VA Supplemental Loan Requirements

Let’s look at a few of the main qualifications and requirements for a VA supplemental loan.

VA Supplemental Loan Eligibility

To be eligible, a Veteran must:

  • Occupy the property as a primary residence
  • Actively have a VA loan for the property in question
  • Be current and in good standing on the existing VA loan

Note: If you’ve already paid off your VA loan or used a conventional loan to buy the property, you cannot qualify for a VA supplemental loan.

VA Supplemental Loan Usage

After determining your eligibility, the VA has stipulations on how you can use the loan.

  • The loan must go toward substantially improving or modifying the subject property
  • If the project’s cost is above $3500, a statement of reasonable value signed by a VA approved property appraiser is required
  • If the project’s cost is below $3500, an appraisal is not required
  • A maximum of 30% of the total loan amount can be used on any upgrades or repairs relating to washing, cooking, heating or refrigerating equipment

Home Improvements VA Supplemental Loans Cover

While these loans are used for improvements, not every residential project may be approved. Projects need to be related to and/or supplement the principal alternation, which is noted in the supplemental loan application. Fire pits and swimming pools are excluded from eligibility.

If you’re trying to figure out if your project is allowed, consider these factors:

  • Does the loan improve the basic utility or liability of the property?
  • Are property alterations restricted primarily to maintaining, replacing, and/or improving the subject property?

How to Apply for a VA Supplemental Loan

There are several options when it comes to applying for supplemental loans. Below are some of the most common.

Roll Supplemental VA Loan

If you choose to finance the loan with the same lender as your original VA loan, you can request that the lender roll the supplemental loan amount into you’re loan amount.

Pay off Your Existing VA Loan

You also have the option to take out a new loan to pay off your existing VA loan. Then, you can roll any costs associated with the improvements into the new loan.

Take Out a Completely Separate Loan

Finally, you can take out a separate loan in addition to any existing VA loans you already have. The only downside is that you now have to manage two different loans.

Other VA Home Improvement Loan Options

There are several alternative VA loan options you can use instead if a supplemental loan isn’t right for you.

VA Cash-Out Refinance

A VA Cash-Out refinance allows eligible Veterans and active-duty service members to convert a portion of their home's equity into cash. A lender will grant you a new loan for a higher amount than your existing mortgage, and you'll receive the difference in cash. This amount can be used for any purpose, such as home improvements, debt consolidation or education expenses.

VA Renovation Loan

VA renovation loans are designed to help Veterans and military members purchase and improve homes that might otherwise be too expensive or require significant work to qualify for traditional financing. Homes that may not already meet the VA’s minimum property requirements are prime candidates for this loan type.

These loans allow borrowers to finance the cost of renovations as part of their overall mortgage, which can be more convenient and cost-effective than taking out a separate home improvement loan. The funds can be used to make a variety of renovations and improvements, including kitchen and bathroom remodels, roof repairs and energy-efficient upgrades.

VA Loan For Energy Efficiency

A VA loan for energy efficiency is offered to Veterans and active-duty military members to help them make energy-efficient improvements to their homes. Borrowers can roll the cost of energy efficient improvements into a VA loan or refinance.

However, several unique rules apply to VA loans for energy efficiency. With loans under $3,000, the VA assumes that a drop in your utility bills will help to offset the cost of improvements. For loans between $3,000 and $6,000, the lender will review your plans to make sure that any increase in monthly mortgage payments will not exceed the projected reduction in your monthly utility bills. Lastly, loans over $6,000 will be subject to greater lender scrutiny and require a "VA Loan Certificate of Commitment."

Some examples of energy-efficient upgrades that may be eligible for financing through a VA loan include solar panels or other renewable energy systems, energy-efficient windows and doors, high-efficiency HVAC systems and more.