You may want to consider applying for a VA loan if you are a veteran or service member who wants to build their dream home. Not all lenders offer VA construction loans. There is also a lot of paperwork. Continue reading to find out more about VA construction loans.
What Is A VA Construction Loan?
Most people are familiar with VA loans that provide a lump-sum payment for the purchase of an existing house. What if you are a qualified surviving spouse, a qualifying National Guard member, or a service member who wants to build a home?
You may qualify for a VA Construction Loan if you meet the above criteria. VA construction loans help you pay for the cost of building a new house. VA construction loans do not pay for your entire home upfront, but only the completed portion. VA construction loans have many benefits. One of the most common benefits is that there is no requirement for a down payment. If you decide not to pay a downpayment, you will not be required to purchase private mortgage insurance.
Some homeowners who obtain VA construction loans do not have to pay the VA funding fees. There is no fee for VA beneficiaries or qualified surviving spouses.
Who Qualifies For A VA Construction Loan?
You must meet certain requirements if you want to take out a VA Construction Loan. The process takes much longer than applying for a VA loan. You’ll also need to show that you are a veteran or service member. You’ll need to meet these requirements as well:
- Find a VA-approved contractor who is licensed and insured.
- When applying for a loan, you and the builder will need to submit all the plans.
- Additional documentation may be required about the materials that you intend to use.
- Plans for the house must be evaluated.
How Do VA New Construction Loans Work?
Get A Certificate Of Eligibility (COE)
VA loans and VA Construction Loans are available only to qualified active duty service members, veterans and qualified reservists, National Guard or reservists, and their eligible surviving spouses. To prove that you are eligible, you will need to submit a Certificate of Eligibility (COE).
The COE is proof that you are eligible to apply for a VA construction loan. If you have served 90 days or more of active service, or 6 years of honorable military service, then you are eligible to receive a COE. These are the specific eligibility requirements.
Get Preapproved For A Loan
You will then need to be pre-approved for a loan. This can be done through a credit union or bank. You may need to ask more questions about VA construction loans if you are not able to get a VA loan from all VA lenders. It is important to get pre-approved because it will help you determine the type of home you can afford. This shows the builder you are committed to this project.
Find A VA-Registered Builder
After you have been pre approved, you can begin looking for a VA registered builder. Veterans Information Portal can be a great resource. To be approved for a VA Construction Loan, the builder that you choose must be VA registered. They’ll also have to submit the plans and materials for their home in advance.
Get The Property Appraised
Next, you will need to hire an appraiser who is familiar with VA construction loan guidelines to assess the plans. You should choose an appraiser familiar with VA construction guidelines.
Close On The VA Construction Loan
After your plans are approved, you can close the VA construction loan. The process can take between 45 and 60 days. You won’t get the money immediately after closing, unlike a traditional mortgage. The funds are distributed based on the timeline for your project. The remaining funds are deposited in an escrow fund to be withdrawn as needed.
Pass VA Inspection
You’ll be required to conduct an official VA inspection once the house is completed. What happens after your project has been deemed complete depends on how your loan was structured. Sometimes you can do construction-to-permanent financing and the loan becomes a permanent VA loan. You may also need to repay your construction loan. This is usually done by refinancing to a traditional VA permanent loan.
Things To Consider About VA Construction Loans
It is exciting to think about building your home, but getting a VA construction mortgage is not an easy task. The entire loan process can take up to 60 days. You must close the loan within 45-60 days before you can start construction.
The owner is also prohibited from assisting in the construction process. All builders must be licensed and insured by the VA. They are also responsible for construction closing costs.
FAQs On VA Construction Loans
What kind of house can I build with a VA construction loan?
Each lender has a specific requirement for the type of home that can be built using a VA construction mortgage. Mobile or manufactured homes, for example, are unlikely to receive approval. Speak to your lender or loan officer to find out more about the types of houses that are allowed.
What are the interest rates set with VA construction loans?
The Department of Veteran Affairs does not set or regulate the interest rates for VA homes. The interest rate is based primarily on a borrower’s score and history of lending. Lenders will also use benchmarks like debt-to income ratios when determining interest rates.
When do mortgage payments begin with a VA construction loan?
The VA mortgage payment begins once the construction of the house is complete. It must be paid back within the remaining period. The repayment terms will need to be discussed directly with your lender.