VA HELOC: Your Guide to VA Loan Benefits

A VA HELOC is available for veterans who need loans to fund large purchases, such as home renovations, with other loan options available. It is a line of credit based on home equity. Though these specific loans are not guaranteed by the VA, there are other options for loans available through the US Department of Veteran Affairs. 

The VA offers programs and assistance for both veterans and active-duty service members, including those who are seeking home loans. The VA guarantees the loan, which is provided by a lender, making it easier for veterans to qualify. It is important to note that they only guarantee a portion of the loan; however, this is enough to make a difference for the applicant and increase the chances of the lender approving the loan application. 

Depending on the type of loan needed, veterans can consider various options, from HELOCs to VA cash-out refinance loans. Some of these options can be completed through the VA office, while others may require seeking out other resources directly with lenders. RenoFi provides resources to help veterans learn more about their options when seeking various loan types.

Are VA HELOCs Available for Veterans?

Veterans can consider a HELOC to cover a purchase that requires ongoing funds. Home renovations are a common example. While there isn’t a specific VA HELOC program set by the Veterans Affairs, there are still options available for veterans who want to take this route. Before applying for a HELOC, it is important to first understand what a HELOC is and how it works.

How a HELOC Works

The term HELOC stands for home equity line of credit. A line of credit is a type of loan option that works similarly to a credit card. It is a revolving credit as it can be used continuously. As long as the balance is paid off, the cardholder can continue to access the full credit amount, just in the same way a credit card can be reused after the balance is paid off in full.

Even if the portion of the balance is paid, the user can still have access to the other funds available. For example, if a user has spent $20,000 from a line of credit of $50,000, they can still access the other $30,000, even if the $20,000 that has been spent hasn’t yet been paid off.

Home equity refers to the value of a house. This value can essentially be used as collateral when seeking a loan. The HELOC is a line of credit that essentially provides a loan by using the value of a home as collateral. The benefit of having a HELOC is having access to funds on an ongoing basis, allowing the user to use these funds for various purposes. However, it is important to understand the consequences of using collateral, especially your home.

Using your home as collateral means that the bank or lender will have rights to your house if the loan is unpaid. Always be sure to understand the terms and conditions before agreeing. 

So, put simply, a HELOC is a line of credit that is provided by a lender against the borrower’s home, which then gives the lender the right to take ownership of the home if the loan amount is left unpaid. 

Benefits of RenoFi Loans 

RenoFi lending partners offer VA Loans, which are similar to how a traditional HELOC works. If you’re considering using a home equity loan for a renovation project, RenoFi loans are unique and offer the most borrowing power. 

A traditional HELOC uses the current value of the property and a maximum of 90% loan-to-value ratio (90%). While this may be enough for some homeowners and for smaller projects, it often falls short for most. That’s why RenoFi loans use the after-renovaiton-value of the property and maximize the available equity and borrowing power. 

For example, imagine your home is currently valued at $500,000, and your outstanding mortgage balance is $400,000. You are planning a renovation and expect that the after renovation value of your home would be approximately $640,000. Your current loan-to-value ratio (LTV) is at 80%, which means that you effectively can’t borrow anything to fund your renovation.

A RenoFi loan, however, would allow you to go as high as 150% LTV or 90% LTV using the after renovation value. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000, thanks to the after renovation value of your home!

If you’re considering a home renovation and need a HELOC that gives you greater borrowing power, exploring RenoFi’s options might be the perfect solution for you.

HELOC Options for Veterans

Veterans can apply for HELOCs through various lenders. Those with good credit can apply directly with banks, while those with fair or poor credit might opt to apply with credit unions or even consider alternative lenders. RenoFi can help you navigate this process by helping you find the best HELOC lender that can match your loan needs. 

VA Cash Out Refinance Loan

There is another option available for VA borrowers who are specifically seeking a VA HELOC. If you’re looking for a loan guaranteed by the VA, the cash-out refinance loan might be an option to consider. This loan can use your home’s equity to gain access to funds. It can also help to refinance another loan that was not originally provided or obtained through any VA programs. Essentially, a non-VA loan can be refinanced and become a VA-backed loan.

Veterans can use the cash-out refinance loan to cover various expenses. It gives the veteran two main options: take cash from home equity or refinance a non-VA loan. Besides the typical loan requirements, the process for obtaining a cash-out refinance loan will require paycheck stubs (if applicable), tax forms, and a home appraisal, as well as any other specific requirements set by the lender. It will also require a Certificate of Eligibility, which is used to determine a veteran’s current status. 

Costs of VA Cash Out Refinance Loans

Some costs may be incurred for a VA cash out refinance loan. For example, the VA funding fee, a one-time fee, may be included at closing to cover US taxpayer costs. This, however, can be financed into the loan. Some veterans are exempt from the VA funding fee if they meet specific requirements. 

Still, those who need to pay this fee can weigh their options as other loans will instead require both a down payment and private mortgage insurance. Closing costs are another consideration and will vary depending on the bank issuing the loan.

Understanding the VA Loan Application Process

Veterans can also consider loans offered through the VA. Keep in mind that these work like typical loans and must be paid back in installments. There are several steps to obtaining any type of loan. In general, the applicant must provide documentation required of the lender and fill out an application. 

When it comes to the VA loan application process, there are other considerations that veterans and other active-duty service members will need to factor into their application. Some of the basic requirements for loans include:

• Identification
• Contact information
• Social Security number
• Proof of income
• Financial records
• Appraisal showing the value of property

Steps Involved in the VA Home Loan Process

Veterans who apply for a VA home loan must fill out an application through the US Department of Veterans Affairs. Typically, they will need to bring identification, documents showing proof of income, and any other documents or requirements specific to the loan they are seeking. VA-backed loans differ from other loans in that they require additional verification with a Certificate of Eligibility.

Veterans will need to consider eligibility for VA-backed loan options. The Certificate of Eligibility, or COE, is required in order to process VA-backed loans. The purpose of a COE is to show proof of service in the military. 

Qualifications for these loans are based on service history or their current military status. Veterans can obtain a COE on the VA website. For active-duty service members, they must have served for 90 days of continuous service. For veterans, this will depend on the specific periods in which they served and their length of service.  

After the COE, lenders can begin the underwriting process to review the loan. Once approved, veterans must also consider closing costs and the VA funding fee, like the VA cash-out refinance loan. These may be bundled into the loan itself. Borrowers have the option to finance these costs or pay them in full.

Benefits of VA Home Loans

There are several benefits of VA home loans. The purpose of these loans is to help veterans and active-duty service members qualify for loans; however, they also offer valuable incentives that can help make the loan more favorable when it comes to interest rates and other costs. Some of the benefits of VA loans include:

• Lower interest rates
• Can be used multiple times
• Down payments are generally not required
• Closing costs are lowered or limited
• Private mortgage insurance (PMI) is not required

VA home loans offer lower interest rates and can be used multiple times as there is no set limit for these applications. The typical down payment requirement, which is normally required of other loans, is waived for VA loans. This removes a large cost for the borrower and allows them to allocate these funds to other expenses. 

Most loans will require private mortgage insurance or simply PMI. Because VA loans are backed by the VA department, borrowers don’t have to purchase this insurance. Another cost that is cut is the closing costs. These are more limited for VA home loans as compared to other loans. 

Tips for More Favorable Terms

Borrowers can aim for more favorable terms for their loans. Generally, interest rates on the loan could be lower if the borrower meets certain requirements. The lower the interest rate, the less the borrower will spend overall. 

One of the major factors is the credit score. Lenders determine how much they can lend out by referring to this number to look at the risk of lending funds to this applicant. Improving your credit score or using your home’s value is possible with a few tips. 

Improve Credit for Lower Interest Rates

Lenders will also look into the applicant’s credit report to determine if the applicant can afford to pay back the lender. Typically, lenders will set a minimum credit score requirement, generally around 620, to help applications understand what is needed. 

The credit score is important to consider before applying since this three-digit number can help you qualify for lower interest rates. The higher the score, the better the terms. Those who want to boost their credit before applying can do so with just a few tips:

• Utilize less than 30% of the total credit available
• Avoid applying for credit cards to reduce the number of recent hard inquiries
• Ensure all payments are made on time
• Keep accounts open even if they’re not being used

It’s advised to utilize only 30% of your total credit available. If you have a credit limit of $10,000, you should only use $3,000 or less. This shows that the applicant doesn’t already owe too much to other lenders and can afford to pay back the loan. Make sure not to apply for credit elsewhere. Too many hard inquiries can decrease your credit score, so avoid applying for new credit cards to prevent any decreases in your score.

Having on-time payments also helps to boost your credit score. This proves to lenders that you can pay back what you owe according to the original terms of the agreement. It is also crucial to keep credit card accounts open, even if you don’t use them. The age of the accounts also factors into your credit score. So, having a credit card open for several years has an impact on this average age, even if you’re not necessarily using the card currently.  

Maximize the Value of Home Equity

If your credit score isn’t exactly meeting the requirements, you may still qualify for loans based on your home equity. For example, an applicant with poor credit may still qualify if their home has a high value. This makes up for the risk of lending to someone with poor credit. This value could make a difference for lenders as the funds are being backed by this property. 

Lenders will also value home equity differently, depending on how much of the home they want to consider. Some lenders will only consider a portion of the value, while others may look at 100% of the value of the house. Comparing options is key to determining how much equity you want to be considered through the application process. 

Providing Solutions for Veterans

RenoFi offers resources to help veterans who are making important financial decisions. Whether you’re seeking a HELOC, a home loan, or a VA cash-out refinance, knowing the steps of the process and the loan requirements can help ease the overall application process. 

RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the After Renovation Value of your home. This allows you to borrow on average 11x more, get a low monthly payment and keep your low rate on your first mortgage. 

Veterans can be empowered when they have the right tools and guidance to make financial decisions. Find resources to fit your needs and browse through loan options on RenoFi.