How to Build a Home with a VA Loan

Military veterans looking to build their dream home can apply for a VA construction loan if they prefer not to use their home benefits to buy a house. The VA construction loan is a good option for veterans or current service members who would rather not purchase an already built home. We take a deep dive into these loans below.

What is a VA construction loan?

A VA construction loan enables a veteran or service member borrower to ask for money to build a house from the foundation up, as well as a loan for a mortgage on the home they plan to own.

Options include two-close construction loans, which allow borrowers to apply for a loan for the mortgage and construction phases, using 2 applications with 2 closing dates. These loans are more complex, mainly because of the 2 closing dates. Despite this, though, they are the popular option for VA construction loans

The VA One-time close mortgage is another type of construction loan. Unlike the two-close loan, it requires only one application and closing date. This loan type also avoids needing the borrower to credit-qualify two times.

One-time close mortgages also require the borrower to obtain approval for paperwork like builder permits for the construction phase as a condition for final approval. 

Who is Eligible for a VA construction loan?

There’s a list of requirements that individuals interested in taking out a VA new construction loan to build a house have to meet. The primary requirement for qualifying for a construction loan is to prove that you’re an eligible veteran or service member.

For this, you have to have finished six years of honorable service or served at least ninety days of active service.

What can be built with a VA construction loan?

Lender standards for construction loans are very important, as some lenders don’t approve loans for all property types. For instance, some lenders don’t issue construction loans for manufactured housing, modular homes, or mobile homes. Such lenders may only issue loans for stick-built homes, which is basically a house built from scratch. Additionally, some VA new construction loan lenders may not issue loans for multi-unit properties. This is why you must discuss the plans you have for your home with your loan officer so they can provide your best options.

How does one apply for a VA construction loan?

As mentioned above, applying for a construction loan is complex, mainly because few lenders provide this kind of loan. It’s not impossible, though. 

Below is a step-by-step process for applying for a VA new construction loan.

Acquire a Certificate of Eligibility 

For starters, you will need to obtain a certificate of eligibility — only veterans or active-duty service members are eligible for these loans. For this, you will need to have served no less than ninety days of active service or finished six years in honorable service.

Obtain loan preapproval

Once you have your certificate, you will need to obtain loan preapproval. This can be done through a credit union or bank. Getting preapproved is important as it allows you to get an idea of the type of house you can afford to construct. 

Look for a VA-registered contractor

You can then find an insured and licensed builder after acquiring pre-approval. The contractor you hire needs to be registered under the VA to receive approval for your VA new construction loan.

You, the borrower, and the contractor you hired will also have to submit a complete set of plans for your construction when applying for the loan. In addition to this, you may be required to submit documentation showing the materials you plan on using to construct your home.

Property Appraisal

Once you find a VA registered builder, you can then hire a home appraiser who’s also VA registered to evaluate your proposed plans. You’re advised to hire an appraiser who has experience with the guidelines on VA construction loans.

Close on your loan

After your initial plans receive approval, you can close on your construction loan. The whole process takes between 45 to 60 days to complete. It is important to remember that the funds for your construction will be distributed in intervals instead of immediately after your loan closes.

Pass inspection

Once your house is built, you must complete an official VA inspection. After receiving approval, the project is deemed complete, and your VA new construction loan becomes a permanent loan.

What else should you know about VA construction loans?

You cannot use a VA loan to buy unimproved land to construct a house in the future. Military members or veterans who own land they’d like to construct a house on can use any equity they have for construction financing.

Additionally, you should keep in mind that VA construction loans are short-term loans that will have to be repaid, so you should start planning for repayments.

As you can see, it isn’t so hard to secure a VA loan to build your dream home. If you need help navigating the loan acquisition process with the VA department, reach out to us at Security American Mortgage. We would love to help!