VA home loans are highly desirable, offering veterans and service members a loan that provides low-interest rates, often requires little or no down payment, and avoids expensive monthly mortgage insurance payments. What’s more, VA loans are guaranteed by the Department of Veterans Affairs if you default, allowing you to buy a home with an added safety net if anything goes wrong.
But what if you want to build your own home rather than just buy one? In this instance, you need a VA construction loan. The process for VA construction loans is more complex than that of a standard VA home loan, but with the right approach, they can allow you to build your dream home with an affordable finance solution at Security America Mortgage.
VA Construction Loan Eligibility
As with other VA loans, the general requirement to be eligible for a VA construction loan is that you’ve served at least 90 days in active duty or at least six years in the National Guard or Reserve. You’re also eligible if you’re a veteran discharged due to a service-related disability, or if you’re the spouse of a veteran who died in active service or as a result of a service-related disability (as long as you haven’t re-married). As with a conventional loan, you’ll also need to pass a certain credit score threshold and other financial history checks. However, these requirements are much more relaxed for VA loans than conventional loans.
VA Construction Loans Vs. Refinancing
Because of the complex process involved in a VA construction loan, not all lenders provide them. Because of this, some lenders instead opt for a refinancing approach. This involves taking out a conventional short-term construction loan, then refinancing with a VA home loan or VA cash-out option once construction is complete. However, this approach often dilutes the benefits of a VA construction loan – it may require a larger down payment, and can be more expensive during construction. As such, while fewer lenders provide direct VA construction loans, they’re often worth the extra effort to find a lender who can help you secure one.
The VA Construction Loan Process
Similar to other types of VA loans, your first step in the VA construction loan process is to prove your eligibility. This means acquiring a Certificate of Eligibility from the Department of Veterans Affairs to show you’ve completed the required length of service. Next, you need to get pre-approved for a loan through a bank, credit union, or another lender. This is an important step as it allows you to gauge how much you can expect to borrow, enabling you to plan your home construction to a more accurate budget. After this, you must find a VA-registered builder to work with. You can either find a builder who is already VA-registered, or if you already have a builder in mind, there’s a fairly simple process for them to get registered – all they need is their builders’ information and certification, an appropriate warranty or insurance, and two forms from the VA’s website.
You and your builder must then work together to create construction plans for your new home and submit them to both the VA and your lender. These plans also need to be professionally appraised – make sure to find an appraiser who is familiar with VA construction loans and their requirements so that they can provide you with accurate guidance and advice alongside their appraisal. Finally, you’ll need to close on the VA construction loan with your lender. This whole process can take up to 60 days before construction can even begin, which is why it’s vital to be fully informed and prepared beforehand. Take a look at securityamericamortgage.com website to learn more about this process.
How VA Construction Loan Finance Works
Unlike a normal mortgage, VA construction loans are not paid immediately – instead, the builder draws funds from a third-party account as needed during construction. You must make monthly repayments during the course of construction, but only to cover the interest on your loan. Once your new home’s construction is complete, the final step is to have your home pass a VA inspection. After this, the project is considered complete, and your construction loan rolls over into a monthly mortgage in order to repay the remaining balance on your construction loan.
While the lengthy, complex process required for a VA construction loan can be off-putting (for both veterans and lenders), the bottom line is that it’s more than worth it for the benefits it offers. Not only do VA construction loans allow veterans to build the home they deserve, but they’re also highly affordable and accessible, with low-interest rates, relaxed credit score requirements, and can even avoid down payments.