VA construction loans provide the perfect opportunity to build your dream home.
VA loans aren’t just for use on existing properties and approved condos. They can also be used to construct new homes from the ground up.
Are you interested in building a new home using your VA loan benefit? Here’s what you need to know.
A VA construction loan — technically called a “VA construction to permanent loan” — is a unique tool that allows borrowers to finance the construction in a two-fold process. First, you secure a construction loan from your builder, which is used to cover materials, labor, and the construction of the property. Then, when the house is constructed and ready for move-in, you’ll transition that into loan a permanent VA mortgage that can be paid off over time.
As with a traditional VA loan, you’ll need to meet the Department of Veterans Affairs’ service requirements, verified by your Certificate of Eligibility. You will also need to meet your lender’s individual requirements for credit score, debt-to-income ratio, and more.
The process is a bit complicated for a VA construction loan, but that doesn’t mean it’s not possible. To build a house using a VA loan, you’ll first need to find a builder with a valid VA builder ID — or one who’s willing to fill out the VA new construction builder docs and apply for one. They will also need to provide a one-year warranty on the property, as well as specs and plans for the house before moving forward with construction.
You’ll then secure a construction loan through the builder. This usually requires a down payment, closing costs, and a separate closing appointment. Once the home is built, you can continue with the VA loan process, and your VA-approved lender will order an appraisal of the property.
If you meet your lender’s qualification requirements and are approved, your VA loan will be used to pay off the construction loan, leaving you with just the VA mortgage payments for the remainder of your loan term.
VA loans can only be used to finance your primary residence. Beyond that, the type of property you can build varies by lender. Some may allow you to build multi-unit properties, modular homes, or manufactured housing; others may only allow single-family and stick-built homes.
A quick pro-tip here: Since you’ll ultimately need a VA appraisal to get your loan, plan your home accordingly. Size, style, and feature-wise, it should fall in line with other properties in the community. Over-building can cause your home’s appraisal to come in low, which would mean making a down payment you probably weren’t planning on.