VA Construction Loan: A Step-By-Step Guide to Lenders and Terms

Everyone wants a place that they can call home, but the reality is often different as it is expensive to purchase or build a home. However, veterans, active service members, and surviving spouses have VA construction loans available to them. The VA construction loan is a loan backed by the Department of Veterans Affairs and allows you to build your home from start to finish. Let’s take a closer look.

VA Construction Loan Single Close

VA construction loans are a type of one-time close loan. The VA one-time close construction loan is a loan program provided to active-duty military personnel and veterans to finance the lot purchase, construction, and permanent mortgage for a home in a single closing.

With the VA one-time close construction loan, you don’t have to apply for a second closing, pay more closing costs or separate loans to get mortgage financing for a newly constructed home. The one-time closing covers the purchase of the land, construction of your home, and permanent mortgage. This also means the interest rate is locked in and will not increase like a variable rate temporary construction loan.

With the right lender, the VA construction loan comes with competitive interest rates, and there is no down payment required. It also removes the second closing, so you can save time and money as you don’t have to pay too many closing costs.

Get pre-approved to find your price range

The first step to getting a VA construction loan is to apply for a pre-approval. Getting pre-approved is important because it gives you an idea of your price range and how much you will qualify for.  Utilize a Construction Loan Calculator to help calculate your potential payment and investment.

Choose a VA Lender

Next, you need to consider different VA construction loan lenders before choosing the one that is ideal for you. You should first look out for lenders that offer VA construction loans and check their reputation and other factors.  One reputable VA lender is Security America Mortgage. They specialize in VA loans in Texas and many other states.  You can count on them for Construction loans, Renovation loans and most all home loan types including FHA, Conventional, ITIN, and USDA.  

Find A VA-Registered Builder

After finding a good VA lender you should search for a VA approved builder. The builder must be registered with the VA, approved by the lender, and should provide a one-year VA builder’s warranty. The VA builder should also carry sufficient mortgage insurance through a general insurance liability policy.

Get a VA home appraisal

You need to get a home appraised before you can apply for the VA home loan. In this case, you can only work with a specific VA home appraiser and not just any appraiser. The appraiser would evaluate the project plans, so ensure you choose one that is familiar with the VA OTC construction loan.

Submit project plans

With a builder on your team and a report from a VA home appraiser, you can submit your project plans to get your loan approved. It’s important to work with a reliable lender that can speed up the process of submitting the application for your VA construction loan.

Close on the VA new construction loan

All that is left for you is to close the VA new construction loan. Since it’s a one-time close loan, you won’t have to worry about a second closing. The permanent loan would also have been closed along with the money for home construction. Once the VA loan is closed, you can start the building process.

Pass VA Inspection

With a VA construction loan, the borrower cannot perform any of the work, so the general contractor/builder will handle everything. The house will be inspected periodically during the construction phase to check if the VA regulations are being met. Once the home construction is complete, it will undergo a final inspection before you move in. You need to move in quickly as it is only available for those who want to build their primary residence.

How Does A VA Construction Loan Work?

The VA construction loan works as a long-term loan that allows you to purchase land and build a custom house as your primary residence. The VA loan is available for 15-year and 30-year fixed terms, with a minimum qualifying credit score of 620. The interest rate is also protected during construction, and you can get 100% financing because of the guaranteed from the Department of Veterans Affairs. Even the funding fee can be financed into the VA loan.

The permanent VA loan needs to be approved before construction starts, and the construction portion is also underwritten and approved. There is no need for requalification once the construction of your home is complete. The debt to income ratio is high and the down payments are low. All of these are the VA loan benefits.

Make Sure You Qualify: Eligibility and Your Entitlement

It’s important to check if you qualify for the VA construction loan by working with your lender. You need to be an active-duty service member, military veteran, National Guard personnel, or surviving spouse. You also need a minimum qualifying credit score of 620 and check if you have enough entitlement to apply for the VA construction loan..

Do I need a certificate of eligibility (COE) for a construction loan?

You need a certificate of eligibility for a VA construction loan. If you are applying for a VA purchase loan, you need to first get a certificate of eligibility from the VA. Through the portal, you need to fill out the form to receive the certificate.  Security America Mortgage has direct access to the VA portal to retrieve an automated Certificate of Eligibility.

Here are some requirements for applying for a VA construction loan:

• The borrower must be a qualifying active duty member of the US military, surviving spouse, or veteran.
• The borrower needs to have a Certificate of Eligibility.
• The borrower cannot perform any of the work.
• The general contractor must be registered with the VA.
• There should be periodic inspections of the property under construction.
• The builder should provide a one-year VA builder’s warranty and carry sufficient mortgage insurance.
• Borrowers need to meet the income, asset, and minimum property standard requirements.
• The eligible property types include a one-unit stick-built house, modular home, and newly manufactured double or triple-wide housing.

Are credit qualifications higher with VA construction loans?

The credit qualifications of the VA construction loan are lower than that of traditional construction loans. The VA one-time construction loan has a minimum credit requirement of 620, which makes it accessible to a wide range of borrowers.

When do mortgage payments begin with a VA construction loan?

Mortgage payments start when the construction is complete. There are no payments due during the VA construction loan process with a VA one time close construction loan. 

Can you buy land with a VA construction loan?

You can buy land with the VA construction loan, but only if you are going to use the land to build a new house under the VA loan. The VA OTC construction loan will finance the lot purchase and construction process of your home and will also handle the permanent VA loan. Keep in mind that if you already have a piece of land, you can only get construction loans and a permanent mortgage.

Why are VA construction loans hard to get?

VA construction loans are not as hard to get as people think. As long as you meet all the eligibility requirements and you were or are in the military, you can get the VA construction loan. This is why you should work with a reliable lender that can help you qualify for and receive a VA OTC loan. It also comes with a 100% LTV, which can reduce the down payment on your VA loans to almost nothing.

What are the interest rates for construction loans?

The interest rates are competitive and will be locked in before the VA loan is closed, and the construction begins. So, the interest rates of VA loans will not increase during construction.

What Kind Of House Can I Build With A VA Construction Loan?

You can build a site-built, modular, and manufactured home with the VA construction loan. You can make a 1-unit stick-built house and PUDs. It’s important to meet the requirements for your property when getting VA construction loans. 

Start with a VA Construction Loan

You can get started with your VA construction loan today and build your dream house. The VA OTC construction loan allows you to build a home for yourself and your family, even if you are traveling around due to your obligation to the military. With the VA construction loans, you can build a home and receive the permanent mortgage in one closing. Start working with a lender for a VA loan today. Security America Mortgage specializes in Construction loans, and they are dedicated to serving those who served. You can reach them at 1 855 GO VA NOW.