Veterans who retire from military service often look to settle into the home of their dreams. In some instances, that is accomplished with a VA Home Loan to help finance a home they have shopped for, found and want to purchase. But many others have the dream to actually build the home of their dreams from the ground up.
The VA One-Time Close (OTC) Construction Loan allows veterans and their families to plan, design and construct their future dream home and finance it with an all-in-one VA Loan product. As the loan is offered all in one bundle, there’s no need to buy land separately, take out a traditional construction loan, and then refinance to a VA Loan.
Since the permanent loan is closed before construction even starts, there is no need for re-qualifying for financing when it comes time to transition from the construction phase to the permanent loan. Due to this, there’s no need for re-appraising, there is only one underwriting process, one set of closing costs and – where the loan gets its nickname – a single closing.
The VA OTC Construction Loan program also offers interim construction financing, lot or land purchase or payoff, and the permanent loan all in one.
The advantages of a VA OTC Construction Loan include no down payment for qualifying veterans who have at least a 620 credit score. Additionally, there is no required private mortgage insurance (PMI).
Other benefits include:
- 100% financing is available
- Low fixed rates and that rate is locked for the life of the loan
- The loan is locked into place before construction begins
- No mortgage payments while construction is ongoing
- Construction Interest is built into the loan.
This allows veterans to build their future exactly where they want to live and be the home’s very first owner. Veterans are able to customize their home with fixtures and features that represent who they are – where they have been and where they are going in the future.
Who Qualifies
A veteran needs to prove their entitlement to VA benefits by obtaining their Certificate of Eligibility (COE.) The VA Construction Loan is only available to active duty service members or veterans. Current and ex military service members are eligible for a COE if they have served at least 90 days of active service or completed 6 years of honorable service.
Other borrower requirements include at least a 620-640 credit score and a debt–to–income ratio (DTI) below 41%. Potential borrowers must meet income requirements based on the size of their family and must not have experienced bankruptcy in the last two years.
The VA does not lend directly. Borrowers have to find their own private lender. Once they have found one, the next step is to choose an approved builder or general contractor that is properly licensed and approved by the VAl. At this point borrowers can submit their home construction plans to the lender.
Note that the VA Construction Loan is subject to a funding fee which is added to the total loan. This fee is paid to the Department of Veterans Affairs. Funding fees are collected in order to offset the bank or lender’s losses if a borrower were to default on their mortgage. The funding fee for the Construction Loan is the same as for traditional VA Loans and is set at 2.3% for first time borrowers and 3.6% for subsequent borrowers. There are exceptions for veterans who have a 10% or greater disability or have been awarded the purple heart.
VA Construction Loan lenders can be hard to find and the process can be confusing and overwhelming for military families. HomeLander Mortgage is a one-stop shop for all mortgage needs – including the VA Construction Loan.
VA Construction Loans make it possible for military families to build their own home from the ground up. With so many advantages to this type of loan, the approval process can be confusing. HomeLander Mortgage will be there every step of the way. Schedule a call to begin the process at www.homelandermortgage.com
