Picture this: a brand-new home, built just the way you want it, on land that you chose, without breaking the bank. Sounds too good to be true, right? Well, buckle up, because VA loans for new construction are here to make your dream a reality.
I know what you’re thinking – construction loans are a hassle. But trust me, VA loans are different. They’re designed specifically for veterans like you and me, with benefits that’ll blow your mind. And the best part? You can use them to build your perfect home from scratch.
What Is a VA Construction Loan?
If you’re a veteran looking to build your dream home, a VA construction loan could be the perfect solution. It’s a type of loan that lets you finance the construction of a new home, and it comes with some pretty sweet benefits.
But before we dive into the details, let’s talk about what a VA construction loan actually is. In a nutshell, it’s a short-term loan that covers the cost of building a new home. The cool thing is, you can roll the construction loan into a permanent VA loan once the home is built.
How Does a VA Construction Loan Work?
Here’s how it works: you find a lender who offers VA construction loans (more on that later), and you apply for the loan. If approved, the lender will give you the money to pay for the construction of your new home.
During construction, you only have to make interest payments on the loan. Once the home is built, the construction loan gets converted into a permanent VA loan, and you start making regular mortgage payments.
Types of VA Construction Loans
There are two main types of VA construction loans: the one-time close loan and the two-time close loan.
With a one-time close loan, you get a single loan that covers both the construction and the permanent mortgage. This can be a good option if you want to keep things simple and avoid paying multiple sets of closing costs.
A two-time close loan, on the other hand, involves two separate loans: one for the construction phase and one for the permanent mortgage. This can give you more flexibility, but it also means you’ll have to go through the loan process twice and pay two sets of closing costs.
VA Construction Loan Requirements
To qualify for a VA construction loan, you’ll need to meet the same basic requirements as any other VA loan. That means you’ll need to be an eligible veteran, active-duty service member, or surviving spouse.
You’ll also need to have a good credit score and a stable income. The exact requirements can vary by lender, so it’s a good idea to shop around and compare your options.
In addition to the basic VA loan requirements, there are a few extra things you’ll need for a VA construction loan:
- A licensed and insured builder who is registered with the VA
- Detailed plans and specifications for the home you want to build
- A construction contract that outlines the scope of work and the cost
Once you have all of that in order, you can apply for the loan and get started on building your dream home.
How to Get a VA Construction Loan
Alright, so you’re sold on the idea of a VA construction loan. But how do you actually go about getting one? Here’s a step-by-step guide:
Find a VA-Approved Lender
The first step is to find a lender who offers VA construction loans. Not all lenders do, so you might have to do some research. A good place to start is the VA’s list of approved lenders .
When you’re shopping around for a lender, be sure to compare interest rates , fees, and customer service. You want to find a lender who will work with you and make the process as smooth as possible.
Get a Certificate of Eligibility
Before you can apply for a VA construction loan, you’ll need to get a Certificate of Eligibility (COE) from the VA. This document proves that you meet the VA’s eligibility requirements for a loan.
You can get a COE online through the eBenefits portal , or your lender can help you obtain one. If you’ve used your VA loan benefit before, you may already have a COE on file.
Choose a VA-Registered Builder
As I mentioned earlier, you’ll need to work with a builder who is registered with the VA. This is important because it ensures that the builder meets the VA’s standards for quality and safety.
You can search for VA-registered builders in your area on the VA’s website . Once you’ve found a few options, be sure to vet them carefully. Read reviews, check references, and make sure they have experience building the type of home you want.
Submit Project Plans
Once you’ve chosen a builder and a lender, it’s time to submit your project plans. These plans should include detailed specifications for the home, including the floor plan, materials, and finishes.
Your lender will review the plans to make sure they meet the VA’s requirements and that the project is feasible. They may also order an appraisal to determine the value of the finished home.
Get a VA Appraisal
Speaking of appraisals, you’ll need to get one before you can close on your VA construction loan. The appraisal will determine the value of the finished home and make sure it meets the VA’s minimum property requirements.
Your lender will typically order the appraisal, but you’ll have to pay for it as part of your closing costs. The appraisal fee can vary depending on the size and location of the home, but it typically ranges from $300 to $500.
Close on the Loan
Once the appraisal is complete and your lender has approved your project plans, it’s time to close on the loan. At closing, you’ll sign a bunch of paperwork and pay any closing costs and fees.
After closing, your lender will disburse the funds to your builder in installments as the construction progresses. This is known as a “draw schedule” and it helps ensure that the builder is staying on track and using the funds appropriately.
Complete Final VA Inspection
When the construction is finished, the VA will conduct a final inspection to make sure the home meets their standards. This is known as a “final VA inspection” and it’s required before the lender can release the final payment to the builder.
If the home passes the inspection, congratulations. You’re officially a homeowner. Your construction loan will be converted to a permanent VA loan, and you’ll start making regular mortgage payments.
Pros and Cons of VA Construction Loans
VA construction loans can be a great way to build your dream home, but they’re not right for everyone. Here are some of the pros and cons to consider:
Advantages of VA Construction Loans
- No down payment required
- Competitive interest rates
- No private mortgage insurance (PMI) required
- Flexible credit requirements
- Can be used to build a custom home
These benefits can make a VA construction loan a smart choice for many veterans and active-duty service members. Plus, building a custom home means you can get exactly what you want in terms of layout, finishes, and amenities.
Drawbacks of VA Construction Loans
- Limited availability (not all lenders offer them)
- Strict requirements for builders and plans
- Can be a lengthy and complex process
- Higher fees than traditional VA loans
- Risk of delays or cost overruns during construction
While the benefits of a VA construction loan can be significant, it’s important to weigh them against the potential drawbacks. Building a home from scratch can be a complicated and time-consuming process, and there’s always a risk of unexpected issues or expenses.
Additionally, the VA funding fee for construction loans can be higher than for traditional VA loans. As of 2021, the funding fee for a VA construction loan is 2.3% of the loan amount for first-time users, compared to 2.15% for a traditional VA loan.
Ultimately, whether a VA construction loan is right for you will depend on your specific situation and goals. If you have your heart set on building a custom home and you’re willing to put in the time and effort required, a VA construction loan could be a great option.
But if you’re looking for a quicker and simpler home buying process, you may be better off with a traditional VA loan or exploring other financing options. As with any major financial decision, it’s important to do your research, weigh the pros and cons carefully, and choose the path that makes the most sense for you and your family.
Key Takeaway:
VA construction loans let veterans finance the building of a new home with great benefits. You can roll it into a permanent VA loan after construction, but you’ll need an eligible builder and detailed plans. Compare lenders for the best rates and make sure to get your Certificate of Eligibility.
Alternatives to VA Construction Loans
I get it. Finding a VA construction loan isn’t always easy. Trust me, I’ve been there. But don’t worry, you still have options to make your dream home a reality.
Let’s take a look at some alternatives that can help you build your home and use your hard-earned VA loan benefit.
VA Purchase Loan
One option is to use a VA purchase loan to buy an existing home instead of building from scratch. This way, you can still take advantage of the benefits of a VA loan, like no down payment and competitive interest rates.
A separate option is to buy a new build. In a new built neighborhood, a buyer typically picks a lot that’s available, a home plan from the builder that will fit on the lot, and they usually put down some kind of deposit to secure the lot and home build. At this point, you can back out of the home purchase but you lose your deposit. A regular VA Loan can be used in this instance, but you will want to be in close communication with your lender during this time. They might want an appraiser to come out during the build process to make sure everything is up to code. However, new builds and nearly built homes allow buyers to usually move in faster while making some custom touches.
I know it might not be exactly what you had in mind, but it’s a solid alternative if you can’t find a VA construction loan.
Cash-Out Refinance Loan
If you already own a home and have some equity built up, a VA cash-out refinance loan could be a good choice. This type of loan lets you refinance your existing mortgage and take out extra cash from your equity.
You can then use that cash to fund your new construction project. It’s a bit of a workaround, but it can be a smart way to leverage the equity you’ve already built.
Traditional Construction Loan
Another route is to get a traditional construction loan from a bank or credit union. These loans usually require a down payment and may have stricter credit and income requirements compared to VA loans.
But they can offer more flexibility in terms of the builders you work with and the scope of your project. It’s worth exploring your options and comparing offers from multiple lenders.
I know it can be frustrating when you can’t find a VA construction loan, but don’t give up on your dream of building a home. With a little creativity and exploring these alternatives, you can still make it happen and use your VA loan benefit.
VA Construction Loan FAQ
I’ve been getting a lot of questions about VA construction loans lately. And I get it, there’s a lot to wrap your head around. Let me break down some of the most common questions I hear.
What Can I Build with a VA Construction Loan?
The sky’s the limit. Well, almost. With a VA construction loan, you can build a single-family home, a modular home, or even a manufactured home. The key is that it has to be your primary residence.
You can also use a VA construction loan to make major renovations to an existing home. So if you’ve found a fixer-upper that you want to make your own, a VA construction loan could help you do that.
What Are the Differences Between VA Construction Loans and Regular Construction Loans?
The main difference is who can qualify. VA construction loans are only available to eligible veterans and service members, while regular construction loans are open to anyone.
VA construction loans also come with some sweet perks, like no down payment, competitive interest rates, and no private mortgage insurance (PMI). That can save you a ton of money upfront and over the life of your loan.
But VA construction loans also have stricter property requirements and builder requirements than regular construction loans. So it’s important to work with a builder who knows the ins and outs of VA loans.
Where Can I Find a VA Construction Loan Lender?
This is where it can get a bit tricky. Not all lenders offer VA construction loans, so you might have to do some digging. Start by searching online for lenders who specialize in VA loans and offer construction financing.
You can also ask for recommendations from your real estate agent, builder, or other veterans who have gone through the process. Don’t be afraid to shop around and compare offers from multiple lenders to find the best deal.
What Are VA Construction Loan Rates?
VA Construction Loan rates carry a bit more risk for the lender because there’s no home to secure the loan. Keep in mind that construction loan rates may be slightly higher than permanent loan rates.
That’s because there’s a bit more risk involved for the lender during the construction phase. But once your home is built and you convert to a permanent VA loan, you can often refinance to a lower rate.
Rates can also vary based on factors like your credit score, loan amount, and market conditions. So it’s always a good idea to get quotes from multiple lenders and compare your options.
I know there’s a lot to consider when it comes to VA construction loans, but don’t let that overwhelm you. Take it one step at a time, do your research, and work with experienced professionals who can guide you through the process.
Key Takeaway:
Finding a VA construction loan can be tough, but you have options. Consider using a VA purchase loan to buy an existing home or a cash-out refinance loan if you own property with equity. Traditional construction loans from banks or credit unions are also worth exploring for flexibility in builders and project scope.
Conclusion
VA loans for new construction are a game-changer for veterans who want to build their dream home. With no down payment, competitive interest rates, and flexible requirements, they make the process a whole lot easier.
But here’s the thing – it’s not just about the money. It’s about creating a space that’s truly yours, where you can put down roots and build a life you love. And with a VA loan, that dream is within reach.
So if you’re ready to start your homebuilding journey, don’t wait. Reach out to a VA-approved lender today and take the first step toward your forever home. Trust me, you won’t regret it.
