If you’re a military veteran, active-duty service member, or eligible spouse, you may qualify for a VA home loan. This type of mortgage delivers a lump sum payment to help you buy a home with no down payment or mortgage insurance required. At the same time, these loans have lower interest rates than conventional or FHA loans, and veterans with full VA loan entitlement have no loan limits.
However, regular VA home mortgages are intended to fund the purchase of an existing house. If you want to build your dream home, you’ll need a VA construction loan, a short-term loan that covers new home construction costs.
VA construction loans offer several advantages. As with regular VA home mortgages, lenders don’t require a down payment or mortgage insurance. Plus, some borrowers—including those on VA disability or qualified surviving spouses—are exempt from paying the VA funding fee.
If you’re interested in financing a new home build with this type of loan, you should know that VA construction loan lenders can be difficult to find. Many lenders that offer traditional VA loans, including Financial Concepts Mortgage, do not provide this financing option. However, we can help you refinance your mortgage into a permanent VA loan once the build is complete.
VA Construction Loan Qualifications
As with regular VA home loans, applicants must meet certain eligibility requirements to be approved for a VA construction loan. For starters, you’ll need to prove that you’re a veteran, active-duty service member, or eligible spouse and submit a Certificate of Eligibility (COE).
Then, you must meet other qualifications above and beyond what VA home loans require. For instance:
- You must find a licensed and insured VA-approved builder to complete the project.
- You and your builder must submit comprehensive construction plans to your lender.
- You must have the construction plans appraised.
- Your lender may require extra documentation about the materials you plan to use.
Because of these additional requirements, applying for a VA construction loan involves far more paperwork and takes much longer than applying for a regular VA home loan. It’s also important to note that the VA restricts using a VA construction loan to buy land. To get around this, you’ll need to already own land, finance the land purchase separately, or buy land with a VA loan and begin construction immediately.
How to Apply for a VA Construction Loan
Step 1: Get a Certificate of Eligibility
You generally qualify for a COE if you have at least 90 days of active service under your belt or six creditable years with the Reserves or National Guard. If you’re a spouse of a military veteran who has a service-related disability or died in the line of duty, you may be eligible if you haven’t remarried. Learn more about the eligibility requirements on the VA website.
Step 2: Get Pre-Approved for a Loan
Pre-approval is essential because it gives you an idea of what a lender is willing to lend you and, therefore, what you can afford to build. The hardest part about this step is finding a lender that offers a true VA construction loan. After all, funding a $0-down construction project is risky.
You may be better off getting a traditional construction loan from a local builder or lender, and then transitioning that into a VA loan after closing. This may require a down payment, but some programs or deals may be available to keep upfront costs down for veterans and military families. Contact Financial Concepts Mortgage to discuss your situation in greater detail.
Step 3: Find a VA-Registered Builder
The VA only approves builders who register and obtain a VA Builder ID. Use the Veterans Information Portal as a helpful resource. Remember, the builder you choose must submit construction plans to the lender for approval.
Step 4: Get a VA Appraisal
Your lender will order a VA appraisal to evaluate the plans and determine the home’s value once it’s built. To ensure a smooth process, choose an appraiser who understands VA construction loan guidelines. As long as the home meets the VA’s requirements and is appraised at a value your lender is willing to lend you, the process can proceed.
Step 5: Close on the VA Construction Loan
You’ll need to close on the loan with your lender before construction starts. This process could take 45 to 60 days to complete.
Step 6: Build Your Home
Unlike a regular VA loan, you won’t receive a lump sum immediately upon closing. Instead, the funds are deposited into an escrow account and dispersed gradually based on the construction timeline. Remember, the VA requires all builders to be licensed, insured, and approved, so no outside source can assist in the build process, including the homeowner.
Step 7: Pass Final Inspection
Once complete, the VA requires the house to pass a final inspection. This typically involves bringing the original appraiser back to evaluate the property. The appraiser’s job is to ensure the home meets the VA’s minimum property requirements. This includes things like having a working HVAC system, sufficient ventilation, quality roofing, clean water supply, safe sewage disposal, and adequate yard drainage.
Step 8: Secure Permanent Financing
What happens next depends on the structure of your loan. You may have construction-to-permanent financing, meaning the loan automatically converts to a VA mortgage. Other times, you’ll need to pay off the short-term construction loan by refinancing to a permanent traditional VA loan. Financial Concepts Mortgage can help you with this.
Get Pre-Approved for a VA Home Loan
At Financial Concepts Mortgage, we regularly help veterans buy, build, or modify their homes with affordable VA loans in Oklahoma. We’re proud to offer the best value in home mortgage lending, with personalized plans available at the lowest rates nationwide. To learn more about the different loans we offer, please contact us online or call us at (405) 722-5626 to speak with an experienced loan officer today.