The PCS Flip: Buy a Fixer Upper with a VA Loan

On Oahu there is a large supply of homes ripe for renovation, so military buyers often contact me to ask about purchasing homes in poor condition. They’ve seen a property which seems like it’s priced below the norm, and wonder if it could shine with a little bit of DIY work.

While it’s possible to purchase a project home with a VA loan, consider:

- One of the best features of the VA loan is it allows buyers to purchase a home with no cash down payment, but in order to make repairs and upgrades, the buyer has to have cash on hand, or live in the house as-is and save money over time to slowly make changes to the home. Construction or rehab loans, where you’d mortgage the cost of the home and its repairs, are technically allowed by the VA, but I’ve not found a lender who offers one.

- The VA will not back a loan on a home with health and safety problems. Those could be drastic ones, such as no functioning plumbing, shoddy construction, or termite damage to the structure, or it can be simple things like not having smoke detectors or proper handrails on stairs. The simple items can often be negotiated with the seller, but the larger issues will either require the seller to agree to a repair prior to closing, or the buyer may be able to request a waiver from the VA.

I recently helped a buyer get a waiver for a property that had an un-permitted deck and staircase built in the backyard. In that case, a general contractor had to inspect the structure and provide a letter stating the improvements met the building code and were built in a professional manner.

- Appliances do not have to be included in the sale, but those present must function and be properly installed. A client recently decided to purchase a home with a gas stove. Unfortunately, the gas stove was connected to a grill’s propane tank through a hole in the wall, an unusual installation. The appraiser required the tank to be disconnected and removed prior to closing because he did not believe the application was installed according to fire code.

- Old and ugly homes are perfectly acceptable, as long as they’re in meet the condition requirements. There is no age limit or beauty requirement for buying a home with a VA loan. 70’s flowery wallpaper, boomerang Formica, and shag carpet are all OK. The structure of the home must be sound and the major components, such as plumbing, electrical, and roof, must function.

The Most Important Consideration

The most important consideration when you’re thinking of purchasing a project home with a VA loan is to choose a Realtor who deals with VA buyers of older homes regularly. The Realtor should be able to spot potential VA appraisal problems. While there isn’t a set list of standards, it’s better to address any potential defects early in the transaction instead of being surprised later.

If you have any questions about VA loans, or buying a fixer upper on Oahu, contact me.