VA Construction Loans

Building a home precisely the way you envisioned it can be more thrilling than discovering your dream home when it comes to home buying. Who wouldn’t want the ability to design their home exactly as they wanted it?

But funding that desire might be challenging. This is especially true for veterans who wish to use a VA loan to pay for new construction. It is feasible to construct a home using a VA loan, but it takes work. Here are the requirements for obtaining a VA loan for new construction.

Does the VA Allow New Construction Loans?

Though there aren’t many of them, some lenders may grant VA loans for house construction. A short-term mortgage created to cover the expenditures of constructing a new house is a real VA construction loan.

These loans may be single-close, which means that one loan transaction would cover the full process of purchasing the property, building the structure, and financing the finished product. However, it will frequently include two closings: one for the purchase of the home and one for the start of development. Regardless of the path you take, you must begin constructing right away since the VA won’t loan money for land unless you begin construction on it at the same time.

What Lenders Issue a VA Construction Loan?

Since lenders are put off by up-front building expenditures, it might be challenging to find a lender prepared to offer a VA construction loan. Even if consumers manage to locate a lender willing to offer a VA construction loan, it could not include the crucial no-money-down provision that makes VA loans so alluring. Prior to obtaining a construction loan, consult with a VA lender.

VA New Construction Guidelines

You must first meet VA loan eligibility requirements in order to get a VA loan for new construction. This implies that either you or your spouse must fulfil the VA’s service criteria and receive a COE, which we’ll cover in more detail below.

To be eligible for this sort of financing, you must also fulfil certain VA new construction standards in addition to the normal VA loan requirements. You must engage with a builder that is VA-registered and able to offer a one-year builder’s warranty for the home. A building site and construction plans evaluation will also be needed by your lender. Individual lenders might need further information, such as evidence of your income, a credit history, and details about any other debts you may still owe.

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What Credit Score Is Needed for a VA Construction Loan

Your lender will review your credit history and score as part of the VA construction loan approval process to assess your degree of borrower risk. A minimum credit score of 620 is often required by VA-approved lenders, however this might vary per lender.

VA Construction Loan Limits

Loans made via the VA for construction have no predetermined restrictions. You can borrow as much as your lender will let depending on your credit history and other financial variables as long as you have your full entitlement available, which means you have paid off any prior VA loans.

What Type of Home Can I Build With a VA Construction Loan?

The same requirements for a typical VA loan apply if you utilise one to finance the construction of a house. Typically, the property must be a single-family house or a condo that has been approved by the VA. However, if you reside in one of the units, you may also be eligible for VA loans for specific modular houses and multi-unit buildings.

Every property must adhere to a set of Minimum Property Requirements (MPRs) provided by the VA. You must make sure that your site and construction designs comply with these criteria since they contain specific safety and sanitary guidelines. Remember that any lender may have extra criteria of their own.

How To Get a VA Construction Loan

The stages involved in obtaining a VA loan for new construction are normally pretty simple and include the following.

1. Get Your COE

Make sure you’re qualified before applying for a VA loan. Your lender will need a VA COE, which they can often verify immediately on the VA’s website. However, you may locate your COE through the VA’s eBenefits site or by completing a VA Form 26-1880 if you want to be sure it is current.

2. Begin Looking for a Lender

In order to find a true VA construction loan, search for lenders who provide this particular type of financing. Ask prospective lenders if they provide this kind of loan before going to the process of applying while you’re comparing lenders.

3. Get Preapproved

Get preapproved once you’ve identified a few lenders who provide VA construction loans. You can determine your eligibility for loan rates and conditions with a preapproval. Additionally, you may complete the remainder of the procedure more easily once you have preapproval in hand.

4. Find a VA-Registered Builder

Although a builder is not required to get the VA’s approval before receiving financing for projects they design, they must register with the agency. A builder may often get registration after this quick and easy process in five working days.

Visit the VA’s online list of registered builders to verify if your builder is listed there.

5. Get Your Property Plans Appraised

As with any VA loan, you will require a loan appraisal to determine the prospective property’s worth and confirm that it complies with the VA’s MPRs. This is necessary to establish your maximum loan amount as well as to confirm the eligibility of your site and property.

6. Close on the VA Construction Loan

You can close on your VA construction loan once your lender has approved your building plans and assessment. Normally, this process takes between 30 and 45 days. Following closing, you will be able to withdraw money as needed for building expenses from an escrow account.

7. Pass a VA Inspection

The inspection happens before closing when you buy a pre-existing house. The inspection, however, happens after the house is constructed when using a construction loan. Again, the VA-approved inspector will confirm that all MPRs are met by the completed home.

8. Close on the Loan

After construction is complete, you might need to close on a second loan, depending on how your VA construction loan was set up. By doing this, your loan is basically changed from a construction loan to a regular VA house loan. This conversion may take place automatically in some circumstances.

VA One-Time Close Construction-to-Permanent Loan

The easiest option to use a VA loan for house construction, if your lender provides it, is a VA one-time close construction loan, commonly referred to as a VA construction-to-permanent loan. Since you only need to do it once, this simplifies the procedure and makes closing on your new loan much simpler. With this sort of loan arrangement, after the house is built, your lender can immediately convert your construction loan to a permanent loan.

As an alternative, you may have a loan with two closings. In such a situation, after the work is finished, your lender will change your loan into a permanent VA house loan. This might be handled by a lender similarly to a refinance or a new loan. In either case, a second closing procedure will be required, which can call for more paperwork and documents.

Alternatives to the VA Construction Loan

You’re not out of luck even if you can’t find a lender that provides a real VA construction loan. By splitting your loan into two parts—a conventional construction loan and a VA purchase loan or refinance—you may often get past this obstacle.

You will need to be eligible for a traditional construction financing in this situation. This may call for a down payment, unlike a VA loan. If you can make this work, utilise the money to pay for the construction before refinancing into a long-term VA purchase loan or VA Cash-Out Refinance. Your lender can assist you in determining which of these alternatives best suits your circumstances because each has its own conditions.

If you choose this option, it’s a good idea to start the process of permanent home finance well in advance of the completion of the construction of your dream house. By nature, a construction loan is a short-term loan, therefore you should start planning your long-term funding as soon as you can.

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