VA Construction Loans: How to Build a Home with a VA Loan
An architectural visualization of a house with a gable roof.VA Construction Loans: How to Build a Home with a VA Loan

Military life can be challenging in different ways, but one way is that it requires constant relocation, which would put stress on them and their families. That’s where the VA construction loan comes in. A VA home loan is a short-term loan that allows veterans to cover the costs of building a new home. Since military families meet the VA loan eligibility, they can build their dream homes.

With a VA loan, veterans can benefit from relaxed credit standards, and they don’t need a down payment. It also offers a simpler construction loan process than a standard mortgage. Take a closer look at how veterans can make use of VA construction loans.

Get Preapproved To Find Your Price Range

The pre-approval process allows military families to prepare for the actual loan application. If they get preapproved by an authorized lender for VA loans, there is a higher chance of getting approved for the real loan once they are ready. The pre-approval VA loan process also allows veterans to find out their price range, like how much they should borrow, what the mortgage rate, and the monthly payments should be. It also considers the debt-to-income ratio, income stability, credit score, and down payment.

Property Construction On A VA OTC Loan

An OTC loan means a One Time Close loan, and this is a construction-to-permanent loan program for military families who need all-in-one financing. With the OTC VA home loan, they can finance the property construction in a single closing. It is designed for new home buyers and comes with a faster turnaround time and low construction admin fees, but there are closing costs involved.

Find A VA-Registered Builder

Veterans can find a VA-approved builder after getting preapproved. The construction builder must be approved by the Department of Veterans Affairs, so it’s important to do the necessary research before making a decision. It’s advisable to consult with multiple builders before choosing one. Also, if the veteran is a licensed contractor or home builder, the VA will not allow them to do the work themselves.

What Is The VA Construction Loan Process?

The VA construction loan process starts with getting a certificate of eligibility. After filling out a form and providing extra documentation like a statement of service, military personnel can receive the certificate. Then, they can choose a VA lender, which would provide a VA loan officer to work with them throughout the process. Next, the veteran should find a VA-registered builder, complete the property appraisal, and begin construction under the VA construction loan program.

How Long Does It Take To Close On A VA Construction Loan?

It should take under 30 days to close VA home loans if the military personnel have land, an approved builder, and plans and has been preapproved for the construction loan. There are different factors that determine the timing of a VA construction loan. Delays can occur if the veteran does not have an approved builder or a site.

The Project Starts When The Loan Is Approved

The construction phase can only begin when the veteran has closed the loan. A closed loan means that the builder can use the available funds for the construction process. But, when the home is complete, the VA will inspect it again to ensure it meets their minimum property requirements.

VA One-Time Close Construction Loan Lenders

With a VA one-time close loan, the veteran can get a fixed interest rate during the approval process before the construction starts. Eligible service members can use this VA One time close construction loan program to finance the lot purchase, construction, and permanent mortgage with one loan, but will pay closing costs. The VA Constructionloan comes with low-interest rates and removes the challenges of a second closing.

How To Get A VA New Construction Loan

To get a VA new construction loan, eligible military personnel should get a certificate of eligibility, get preapproved for the loan, find a VA-approved builder, get the property appraised, and close the loan. Then, the home would be inspected by the VA after it is built.

VA Construction Loan Guidelines And Requirements

There are different requirements to be met in order to receive a VA construction financing loan.

  • The debt-to-income ratio should be lower than 41%.
  • The veteran has not experienced bankruptcy in the past two years.
  • The military family must meet the income requirements.
  • The veteran should have a stable income and employment.

Finalize Your Loan And Start Building

Once the VA construction loan is closed, the funds will be dispersed based on the timeline of the construction project. The remaining amount would be kept in an escrow account and withdrawn as needed. The approved construction company can start building, and there will be an official VA inspection once the home is built.

Acceptable Property Types

There are different property types that are eligible for VA loans, which include condominiums, multi-unit homes, manufactured homes, modular homes, new home construction, tiny homes, barndominiums, and even Airbnb.

FHA Loans Vs. VA OTC Loans

FHA loan is a mortgage loan given by Federal Housing Administration lenders and is insured by the FHA. It provides loans to borrowers that have poor credit or a small down payment. On the other hand, a VA loan is supported by the Department of Veterans Affairs and is provided to veterans. The VA OTC is a one-time close loan that offers all the needed funds in a single loan.

Do I Need A Certificate Of Eligibility (COE) For A Construction Loan?

Veterans, service members, and military personnel need a certificate of eligibility for a VA construction loan. This shows that the person applying is eligible. VA construction loans are available to eligible active-duty service members, qualified reservists, veterans, National Guard personnel, and surviving spouses.

VA Construction Loan Limits

There are no VA construction loan limits; it depends on how much the lender approves, the requirements that the military personnel or family member meet, and the size of the project. As long as the borrower meets all the requirements, they can borrow the land loan amount that they need.

Choose VA Lender

A VA lender can allow a military family to handle the financing details to receive a VA construction loan. When choosing VA construction loan lenders, borrowers should ensure that the company is experienced and professional. It’s important to check online reviews and discuss with multiple VA lenders before making a decision.

VA OTC And Construction Loan Benefits

There are different VA loan benefits to keep in mind. These include the 0% down payment that makes it affordable for borrowers, highly competitive interest rates, and the easy qualification standards as long as it is a veteran, military personnel, or surviving spouse. Another VA loan benefit is that there is no need to pay mortgage insurance.

Permanent Financing For VA Construction Loans

Borrowers can also carry out construction-to-permanent loan financing to make their loan a permanent VA loan. Refinancing the construction loan into a permanent traditional VA loan. Borrowers can get a VA cash out refinance after the construction phase is complete.

Are Credit Qualifications Higher With VA Construction Loans?

Credit qualifications are not higher with VA construction loans. Service members and veterans can receive a VA construction loan, even if their credit score is as low as 640 and they have a higher debt level. This is more convenient than a traditional construction loan.

Can You Buy Land With A VA Construction Loan?

It is possible to buy land with a VA loan, but this must be done along with building a new home. The VA loan program cannot be used to buy land by itself, so it’s best to consider traditional construction loans.

Why Are VA Construction Loans Hard To Get?

VA construction loans are hard to get because they are only provided to veterans and military personnel, and the process is more time-consuming than applying for a standard loan. There are specific requirements that must be met to get a VA construction loan unlike with a conventional construction loan.

What Are The Interest Rates For Construction Loans?

The interest rates for VA loans are determined by the VA construction loan lender and not the VA itself, so there is no fixed interest rate. The VA lenders can also change their rates multiple times.

Energy-Improvement Loans

This is an energy-efficient mortgage through the VA, which allows veterans and military personnel qualified for energy efficiency-related features in their homes. Borrowers can get a loan for a solar water heater, weatherproofing, new insulation, solar panels, furnace efficiency, and storm doors and windows.

When Do Mortgage Payments Begin With A VA Construction Loan?

VA construction loan require the monthly mortgage payments to start once the construction of the home is completed. The loan should be repaid within the agreed-upon term. It’s important to discuss the terms of repayment with the lender, starting with the down payment.

Next Steps For A VA Construction Or VA Rehab Loan

Active service members, veterans, and military personnel can also receive a VA renovation or rehab loan. The VA rehab loan is one that finances the home being purchased and the cost of home repairs and improvements. The loan can be used for new insulation, weatherization, HVAC or plumbing upgrades, mold remediation, removing lead paint, repairing or replacing the roof, flooring, or gutters, and adding accessibility improvements for disabled persons.

ZERO Down Payment On Your VA Construction Loan: Build Your Dream Home Today!

With a VA construction loan, veterans, active service members, military personnel, and surviving spouses can build their dream home! With no significant down payment, the lender can handle the entire process of purchasing the land, building the home, and also carrying out renovations. Working with a reliable VA lender will provide guidance throughout the loan process.