VA construction loans have the potential to assist eligible veterans in funding the purchase of land and the construction of a new dream home without an upfront payment. If the land is already owned, that is also acceptable with the VA construction loan program. However, the journey toward obtaining such loans can present challenges. In this article, we will thoroughly examine the VA construction loan requirements and explore how you can utilize this financial resource to construct your dream home.
Understanding VA Construction Loans
When embarking on a home-building project, traditionally, you might need to obtain three distinct loans, namely the land purchase loan, the home construction loan, and lastly, the permanent loan after the home is complete. The permanent loan pays off the preceding short-term loans and serves as the long-term home loan. In this process, you might go through three different closing processes incurring costs with each transaction.
The VA One-Time Close construction loan can act as a singular substitute for these three distinct loans. This means that you can utilize the loan to acquire land (or to pay off an existing property loan) and fund the construction process in stages made by your contractor. Upon completion of the construction, there is no need to obtain a new mortgage since your VA loan is already in effect, and your loan will automatically convert to permanent financing at the end of the construction. This empowers veterans to procure land and meet the expenses of constructing their home, all through a single loan.
VA Loan New Construction Requirements
The prospect of building your dream home is achievable with a VA construction loan, which can be utilized by eligible veterans, active-duty members, and in some cases widowed spouses of veterans to cover the costs of home construction. To be eligible for a VA construction loan, you must satisfy all the standard VA loan eligibility criteria, in addition to fulfilling some further VA loan construction requirements.
First, you must fulfill one or more of the following standard criteria for obtaining a VA home loan:
- If you are a current service member in the Air Force, Army, Marines, or Coast Guard, you are eligible after serving 90 continuous days of active duty without a break in service.
- As a veteran, you meet the previous active-duty service requirements according to the time period during which you served. The eligibility requirements for VA home loan programs can be found here. If you were or are still serving in the Reserves or the National Guard, your eligibility is dependent on the period during which you serve. It includes 6 years in the Reserves or National Guard or at least 90 days of active duty. For more details about the requirements, you can read more here.
- If you are a surviving spouse of a service associate who passed away during service or due to a post-service disability, you may also be eligible.
In addition, you must also satisfy these criteria to be eligible for the VA One-Time Close Construction Loan:
- Select a builder who has been registered with the VA, is licensed, and is insured.
- Submit a comprehensive set of construction plans and specs to your lender at the time of application.
- Have your home appraised based on the forward value of the home after construction is complete.
- Furnish any additional documents that your lender may request.
How Does the VA One-Time Close Construction Loan Process Go?
The VA construction loan process typically follows the following steps:
- Locate a mortgage company that provides VA construction loans.
- Acquire a Certificate of Eligibility from the Department of Veterans Affairs with assistance from your loan originator.
- Locate a VA-registered building contractor.
- Complete your loan application with your loan originator.
- Go through credit and construction underwriting to confirm loan eligibility.
- Go to closing for your VA One-Time Close Construction Loan at which point your builder can begin construction.
- Upon completion of the construction , the loan will automatically be converted to the permanent VA Fixed financing at which point you will begin making mortgage payments.
