My Perfect Mortgage
VA Construction Loans: Building Your Dream Home with Confidence
4 minute read
May 29, 2024

Many veterans and active-duty service members dream of building a home from scratch. VA construction loans make this dream attainable, offering unique benefits that traditional loans do not.

This guide will cover everything you need about VA construction loans, ensuring you're well-prepared to embark on your home-building journey.

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  • Lend in all 50 states
  • Veteran lending specialist available to you, no matter where you are
  • In-house processing and underwriting
  • Express Loan Approval program, which allows you to be done with the whole process (minus the contract and appraisal), so you can focus on finding your home.
  • Rate Protect (Lock & Shop) lock in your rate before you even find a home!
Your rate and terms may vary based on credit, income, and other factors.

What is a VA construction loan?

A VA construction loan is a short-term loan designed to cover the costs of building a new home.

Unlike traditional loans, which provide a lump-sum payment, VA construction loans disburse funds in stages as the construction progresses.

This ensures the funds are used effectively and according to the construction plan.

Key features of VA construction loans:

  • No down payment required
  • No private mortgage insurance (PMI)
  • Potential exemption from the VA funding fee for certain eligible veterans

Eligibility criteria for VA construction loans

To qualify for a VA construction loan, you must meet specific criteria.

Service requirements:

Active-duty service members, veterans, reservists, National Guard members, and eligible surviving spouses can apply.

A Certificate of Eligibility (COE) is required to prove your eligibility.

Builder requirements:

The builder must be VA-approved, licensed, and insured.

Documentation needed:

  • Complete construction plans.
  • Detailed materials list.
  • Builder's VA identification.

Application process

Applying for a VA construction loan involves several steps.

Step-by-Step Guide

  • Obtain a Certificate of Eligibility (COE): This document verifies your eligibility for VA loan benefits.
  • Pre-approval process: Get pre-approved by a lender who offers VA construction loans.
  • Select a VA-approved builder: Ensure the VA approves your builder. Utilize resources like the Veterans Information Portal to verify builder credentials.
  • Submit construction plans: Include detailed plans and a list of materials for VA review.
  • Appraisal: A VA appraiser will review the construction plans and appraise the future home.
  • Closing: Finalize the loan and set up an escrow account for fund disbursement.

The role of the VA appraiser

The VA appraiser ensures that the construction plans meet VA standards and that the proposed home will be worth the loan amount.

A successful appraisal requires detailed and accurate construction plans.

The appraiser also checks that the property complies with local building codes and regulations and assesses its overall marketability and condition.

Closing on a VA construction loan

Closing involves signing final documents and setting up an escrow account. This process typically takes 45 to 60 days.

Funds are disbursed from the escrow account as needed during construction.

Borrowers should ensure they understand all terms and conditions before finalizing the loan.

It's also essential to verify that all required inspections and appraisals are completed before closing.

Managing funds before inspection

Funds from a VA construction loan are released in stages. To stay within budget, it's essential to keep detailed records and track expenses.

Communication with your lender and builder is key to managing funds effectively.

Regularly reviewing the budget and progress can help prevent any financial surprises.

Timely inspections and approvals ensure the project stays on schedule and within financial limits.

VA construction loan inspections

Inspections are required at various stages of construction to ensure compliance with VA standards.

To avoid delays, schedule inspections in advance and address any issues promptly.

Regular communication with your builder can help anticipate inspection needs.

Ensuring all work meets quality standards can prevent costly rework and project delays.

Challenges and considerations

Building a home with a VA construction loan can be complex.

Common challenges include finding a VA-approved builder and navigating the extensive documentation process.

Proper planning and preparation can help mitigate these challenges.

Advantages of VA construction loans

VA construction loans offer several benefits:

  • No down payment: Most borrowers can finance 100% of the construction costs.
  • No PMI: Eliminates the need for private mortgage insurance.
  • VA funding fee exemption: Certain veterans and surviving spouses may be exempt from the VA funding fee.

Additionally, these loans often come with competitive interest rates compared to conventional loans.

The VA's involvement ensures that the property meets high standards, providing peace of mind to borrowers.

FAQs on VA construction loans

What kind of house can I build with a VA construction loan?

You can build various homes, but mobile or manufactured homes are typically not eligible.

How are interest rates set with VA construction loans?
When do mortgage payments begin with a VA construction loan?
Can I act as my own builder?
What happens if there are cost overruns?
How do I find a VA-approved builder?

Ready to build your dream home?

Take the first step towards building your dream home with a VA construction loan from a reputable and experienced lender recommended by My Perfect Mortgage.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.