Thursday , 1 October 2020

Serving an Untapped Borrower Community

BLOG VIEW: In today’s tight purchase market, Veterans Affairs (VA) renovation loans can deliver a double, bottom-line benefit to lenders. Service members, especially our wounded warriors, benefit from having a VA home loan product they can use to make needed renovations. At the same time, lenders gain another vehicle for delivering the home loan benefits service members and veterans have earned.

Like traditional VA purchase and refinance products, the VA renovation loan carries less restrictive underwriting than standard conventional loan sending. The program allows lenders to be more lenient when it comes to a service member’s debt-to-income ratio and credit history.

The VA renovation loan has been available for a few years but has not been used much because it is misunderstood. The VA does not disclose how much of the $161.3 billion in VA home loans originated in fiscal year 2018 were renovation loans. The agency distinguishes them as purchase, interest rate reduction refinancing (IRRRL) and cash out loans.

While the volume of VA loans originated during the first two quarters of fiscal year 2019 was a robust $66.4 billion, it would be safe to say that the proportion of VA renovation loans was small.

VA renovation loans are a great product because they allow mortgage lenders to give back to the men and women who protect our country and now need help adapting their homes. While the VA does offer a specially adaptive housing (SAH) grants, veterans need to meet specific disability requirements to qualify. There are very limited grants awarded during each fiscal year. 

There’s no similar requirement with VA renovation home loans. Service members who are injured or have a disability can use the loan to make a home wheelchair-accessible by lowering countertops, adding ramps or expanding showers. The loan can also be used on traditional home upgrades as well, such as updating a kitchen or bathroom.

Many lenders already specialize in providing VA loans, but a regular VA loan is not always the best option for a veteran. According to statistics from Cornell University, 8.9 million military members return from deployment injured and with a disability. Even when they use their home loan benefits to buy a house they can afford, it may not be accessible.

Traditional VA loans include several benefits, such as no requirements for mortgage insurance and no down payment (unless required by the lender) and the benefit is reusable.

Unfortunately, some of these loans are held up by the VA’s appraisal requirements that a home is safe, sound and sanitary. A VA renovation loan can pay for repairs that resolve issues uncovered by appraisers.

A VA renovation loan can also help veterans who have fallen victim to churning. When a borrower is churned or placed into an inappropriate home loan, it can be difficult to get them out of the ill-suited home loan and into a better product. This borrower group may not trust people in the home loan industry, and rightly so. Providing them with an honest education about available loan options will go a long way in gaining their trust and respect.

At the federal level, there’s more focus these days on taking better care of our service members and veterans. Lenders can do their part by offering VA renovation loans. By learning about the loan’s requirements and educating Realtors and borrowers, lenders have an opportunity to grow their business while also giving service members and veterans access to a truly needed home loan program. 

Vince Nepolitan is the national renovations sales manager at Planet Home Lending.

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