November 2, 2016

One of the many uniqueness of a VA guaranteed loan is the possibility of buying a house and using some of the proceeds of the loan(s) to fix it up before you move in. The only other type of loan similar to this might be construction permanent financing (also guaranteed by the VA). In other words, the VA will under certain circumstances guaranty loans so you can purchase and rehabilitate (rehab) a house that needs repair and that you and the lender knew required repair before closing. You won’t find that anywhere else.

Basically, you will have two loans, one for the initial purchase and a second or supplemental loan for the rehab work. That first loan will almost certainly require your house to appraise and pass inspection, even in its banged up state. In other words, the sink will need to have running water and the furnace will need to heat the house. You must coordinate the purchase and the rehab carefully with not only your lender but also with a licensed appraiser before you make any commitments. While this adds a level of complexity not normally found in residential mortgage lending, bear in mind that the United States Government is about to back the deal with a guaranty. Go for it!

Some Key Rules

It is important for you to know about some of the key rules established by the VA for this type of deal. The headings below have been changed to assist the reader and not all of the rules are restated here-just the ones that seem high profile.

A. VA may guarantee a loan for alteration and repair

o of a residence already owned by the veteran and occupied as a home, or

o made in conjunction with a purchase loan on the property.

B. The alterations and repairs must be those ordinarily found on similar property of comparable value in the community

C. The cost of alterations and repairs to structures may be included in a loan for the purchase of improved property to the extent that their value supports the loan amount.

D. A supplemental loan is a loan for the alteration, improvement, or repair of a residential property. The residential property must

o secure an existing VA-guaranteed loan, and

o be owned and occupied by the veteran, or the veteran will reoccupy upon completion of major alterations, repairs, or improvements.

E. The alterations, improvements, or repairs must

o be for the purpose of substantially protecting or improving the basic livability or utility of the property, and

o be restricted primarily to the maintenance, replacement, improvement or acquisition of real property, including fixtures.

F. Installation of features such as barbecue pits, swimming pools, etc., does not meet this requirement.

G. No more than 30 percent of the loan proceeds may be used for the maintenance, replacement, improvement, repair or acquisition of nonfixtures or quasi-fixtures such as refrigeration, cooking, washing, and heating equipment, and the equipment must be related to or supplement the principal …

In the mid-1990s, and man named Robert Kiyosaki wrote a book called Rich dad, poor dad. This book was one of the first books that said your house was not a financial asset. Many people at the time argued that your house is an asset. Different people define a financial asset with a different definition. We are going to go over the various definitions that different people use.

If you live life according to Robert Kiyosaki’s principles, then a financial asset is something that gives you money each month, quarter, or year. If you were to quit working today, your financial asset would continue to bring in money whether you did anything or not. That is what he defines a financial asset as. Robert also defines a financial asset as something you can sell and turn into money, but his first principle of an asset is something that gives you money each month whether you work or not.

Other people define an asset as something you can sell them turn into money. Different examples of these types of would include money in your bank accounts, stocks, bonds, and mutual funds. Your 401(k) and any other retirement money that you have set aside are also considered assets.

Bankers allow you to count personal possessions as assets, such as your boat, car, and jewelry that you have. When you are applying for a loan, if you have more financial assets in the form of a boat or car that is paid for, the banker will look favorably on this. Of course your banker will consider any mutual funds, 401(k) retirement accounts, cash in the bank, and stocks as an asset to.

We all have different definitions of what an asset is financially and I urge you to look into yourself and see what your definition is. If you are considering your car a financial asset, consider this question. How much did you pay for your car and how much can you sell your car for? If you cannot sell your car for the amount that you paid for it or more, I suggest that it is a financial liability. Losing money on a position should not be defined as an asset, no matter what the situation. Sit down with the pan and paper and write down what you think an asset is. Write down what you currently possess that is a financial asset. Can you sell it today if you had to? If so, would you be able to get more for it than you paid? Understanding the difference between as asset and liability can mean the difference between becoming rich and staying poor.…