source:
  type: guide
  id: va-m26-7-ch07-t05
  authority: VA Lenders Handbook (VA Pamphlet 26-7), Chapter 7, Topic 5 — What is
    a Supplemental Loan
  description: VA Lenders Handbook (VA Pamphlet 26-7), Chapter 7, Topic 5 — What is
    a Supplemental Loan.
  coverage_tier: operative
obligations:
- id: va-m26-7-ch07-t05-full
  canonical_id: va-m26-7-ch07-t05-full
  section: VA Lenders Handbook (VA Pamphlet 26-7), Chapter 7, Topic 5 — What is a
    Supplemental Loan
  type: do
  tags:
  - regulator-direct
  - va
  - va-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: VA Lenders Handbook (VA Pamphlet 26-7), Chapter 7, Topic 5 — What is
      a Supplemental Loan
    source_class: va-handbook
    source_url: https://www.benefits.va.gov/warms/pam26_7.asp
    snapshot_id: 0e2735cf8ca44400
    fetched_at: '2026-05-23T01:53:53Z'
    content_hash: sha256:74297ad4fadd5e592b5688f5567170f8c128f7c9749dd06edd59e735a69099d8
    paragraph_quote: '5. What is a Supplemental Loan Change Date March 11, 2019 •
      This chapter has been revised in its entirety. a. What is a Supplemental Loan?
      A supplemental loan is a loan for the alteration, improvement, or repair of
      a residential property. The residential property must secure an existing VA-
      guaranteed loan, and be owned and occupied by the Veteran, or the Veteran will
      reoccupy upon completion of major alterations, repairs, or improvements. The
      alterations, improvements, or repairs must: • Be for the purpose of substantially
      protecting or improving the basic livability, or utility of the property, and
      • Be restricted primarily to the maintenance, replacement, improvement or acquisition
      of real property, including fixtures. Installation of features such as barbecue
      pits, swimming pools, etc., does not meet this requirement. No more than 30
      percent of the loan proceeds may be used for the maintenance, replacement, improvement,
      repair, or acquisition of non- fixtures or quasi-fixtures such as refrigeration,
      cooking, washing, and heating equipment. The equipment must be related to or
      supplement the principal alteration for which the loan is proposed. Continued
      on next page VA Pamphlet 26-7 Revised Chapter 7: Loans Requiring Special Underwriting,
      Guaranty, and Other Considerations 7-25 5. What is a Supplemental Loan, continued
      b. Required Lien and Maximum Loan Term It is the lender’s responsibility to
      obtain an effective lien of the required dignity (lien position). Possible methods
      to secure a supplemental loan are: • Through an open-end provision of the instrument
      securing the existing loan, • Through an amendment of the existing loan security
      instrument, By taking a new lien to cover both the existing and the supplemental
      loans, or • By taking a separate lien immediately junior to the existing lien.
      The maximum loan term is: • 30 years if amortized, or • 5 years if not amortized.
      c. Other Requirements The existing loan must be current with respect to taxes,
      insurance, and amortized payments, and must not otherwise be in default unless
      a primary purpose of the supplemental loan is to improve the ability of the
      borrower to maintain the loan obligation. The making of a supplemental loan
      can never result in any increase in the rate of interest on the existing loan.
      A supplemental loan to be written at a higher rate of interest than that payable
      on the existing loan must be evidenced by a separate note from the existing
      loan. Continued on next page VA Pamphlet 26-7 Revised Chapter 7: Loans Requiring
      Special Underwriting, Guaranty, and Other Considerations 7-26 5. What is a Supplemental
      Loan, continued d. Prior Approval or Automatic Loan Closing A supplemental loan
      will require the prior approval of VA if the: • loan is to be made by a lender
      that does not have authority to close loans on an automatic basis or • loan
      is to be made by a lender that does not have authority to close loans on an
      automatic basis; or • an obligor liable on the currently outstanding obligation
      will be released from personal liability by operation of law or otherwise. e.
      Procedures Submit a statement describing the alterations, improvements, or repairs
      made or to be made with the prior approval application (or loan closing package,
      if closed automatically). In addition, report the amount outstanding on the
      existing loan as of the date of closing of the supplemental loan in the loan
      closing package. Continued on next page VA Pamphlet 26-7 Revised Chapter 7:
      Loans Requiring Special Underwriting, Guaranty, and Other Considerations 7-27
      5. What is a Supplemental Loan, continued e. Procedures, continued If the cost
      of the repairs, alterations, or improvements exceeds $3,500: an NOV and compliance
      inspections are required. If the cost of the repairs, alterations, or improvements
      does not exceed $3,500: an NOV and compliance inspections are not required.
      Instead, a statement of reasonable value may be submitted. The statement must
      be completed and signed by a VA-designated appraiser. A VA-designated appraiser
      is an individual nominated by the lender (who may be an officer, trustee, or
      employee of the lender or its agent) who has been approved by the local VA office.
      The statement must specify the: • work done or to be done, • purchase price
      or cost of the work and material, and • purchase price or cost does not exceed
      the reasonable value. In lieu of VA compliance inspections, the lender must
      submit a certification as follows: “The undersigned lender certifies to the
      Department of Veterans Affairs that the property as repaired, altered, or improved
      has been inspected by a qualified individual designated by the undersigned,
      and based on the inspection report, the undersigned has determined that the
      repairs, alterations, or improvements financed with the proceeds of the loan
      described in the attached VA Form 26-1820, appear to have been completed in
      substantial conformance with related contracts.” f. Guaranty and Entitlement
      If the supplemental loan will not be consolidated with a related outstanding
      guaranteed loan the: • Veteran must have sufficient entitlement for the new
      loan, and Continued on next page VA Pamphlet 26-7 Revised Chapter 7: Loans Requiring
      Special Underwriting, Guaranty, and Other Considerations 7-28 5. What is a Supplemental
      Loan, continued f. Guaranty and Entitlement, continued • VA will issue a new
      LGC solely for supplemental loans. If the supplemental loan will be consolidated
      with a related outstanding guaranteed loan, VA will issue a new modified guaranty
      certificate. g. Procedure If the Veteran has no available entitlement, VA can
      still guarantee the supplemental loan provided the lender is the holder of the
      Veteran’s existing loan and the loans are to be consolidated. The amount of
      the modified guaranty will be the maximum guaranty effective on the existing
      loan at the time the supplemental loan is closed. To calculate the percentage
      of guaranty applicable to the combined indebtedness take the result of Step
      1, and divide by the result of Step 3. Follow the steps in the table below to
      calculate the percentage of guaranty applicable to the combined indebtedness.
      Step Action 1 Take the balance of the existing loan at the time of closing of
      the supplemental loan and multiply by the percentage of guaranty for the existing
      loan, as shown on the guaranty certificate. 2 Calculate the amount of guaranty
      that would be issued on the supplemental loan as an independent loan (do not
      exceed the amount of entitlement available to the Veteran). 3 Take the balance
      of the existing loan and add the amount of the supplemental loan. 4 Take the
      result of Step 1 above and add the result of Step 2 above. 5 Divide by the result
      of Step 3 above. VA Pamphlet 26-7 Revised Chapter 7: Loans Requiring Special
      Underwriting, Guaranty, and Other Considerations 7-29'
  judgment: false
