1. Purpose. This Circular replaces Chapter 7, Topic 4, Loans for Alteration and Repair, in the Department of Veterans Affairs (VA) Lender’s Handbook, 26-7, effective immediately.
2. Background. VA has received inquiries regarding the procedures to process loans for alteration and repair. The Aging housing stock in the United States has contributed to the increased demand for alteration and repair loans. Due to the condition of this aged housing, homes are often sold as “cash or conventional financing” which does not allow Veterans to use their VA earned benefit. This guidance will allow Lender’s to make VA-guaranteed loans to
Veterans who wish to purchase or refinance a home that is in need of alteration and/or repair. The terms alteration, repair, renovation, and improvement are interchangeable for the purposes of this Circular.
3. Policy. VA may guarantee a loan for alteration and/or repair that allows improvements to be included in the value and completed after closing of the loan. The loan proceeds are paid out to the builder and/or contractor during the alteration/repair period. The lender must obtain written approval from the borrower before each disbursement or draw payment to the builder and/or contractor.
Please see Circular 26-18-6 for complete requirements.