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Dream Big With the VA Construction Loan

VA Construction Loan:

If you’re a service member or veteran who’s looking to build your dream home, you might consider applying for a VA construction loan. Unlike with traditional VA mortgages, not all lenders offer VA construction loans, and quite a bit of paperwork is involved.

Let’s explore the steps necessary to secure a VA construction loan together. At Elevation Mortgage, we’re dedicated to helping you finance your ideal home. We’ll provide the guidance needed to navigate the qualification process for a VA construction loan.

What is a VA Construction Loan?

VA construction loans offer a unique approach to financing the build of a new home, functioning as short-term loans that provide funding not in a lump sum, but in stages, corresponding to each phase of construction completed.

A standout feature of VA construction loans is the potential to secure the loan without a down payment. Choosing this option also means you’re not obligated to pay for private mortgage insurance (PMI), which is often a requirement with other types of loans when a down payment isn’t made. Furthermore, certain borrowers may qualify for an exemption from the VA funding fee—a cost usually associated with standard VA loans. This exemption is available to veterans receiving VA disability benefits and to some surviving spouses who meet specific criteria.

While you might be more accustomed to the traditional VA loans that provide a single payment for the purchase of an existing house, VA construction loans open up a pathway for those who are active-duty service members, National Guard personnel, eligible reservists, qualifying surviving spouses, or veterans who wish to take on the journey of building their own home. For individuals fitting these descriptions, a VA construction loan could be a perfect fit.

Who Qualifies For A VA Construction Loan?

Pursuing a VA construction loan comes with its own set of distinct criteria, and the application process is notably more involved compared to securing a traditional VA home loan.

To qualify, as with a VA loan, you must demonstrate your eligibility as a service member or veteran. Beyond that, there are additional steps, including:

  • Securing a builder who is not only approved by the VA but also holds the proper licensing and insurance.
  • Collaborating with your builder to submit a comprehensive set of blueprints during the loan application process.
  • Potentially providing further details about the materials intended for use in the construction.
  • Having the home’s design plans professionally appraised.

These requirements ensure a thorough review process, ensuring that both the builder and the construction plans meet VA standards.

How To Apply For A VA New Construction Loan

Navigating the VA new construction loan process can be intricate, primarily because not all lenders offer this type of financing. Here’s a detailed guide on how to apply for the VA construction loan program:

  1. Obtain a Certificate of Eligibility (COE): To access VA loans and VA home building loans, you must be an eligible active-duty service member, veteran, qualified reservist, National Guard personnel, or an eligible surviving spouse. A COE is required to verify your eligibility. You’re generally qualified for a COE with at least 90 days of active military service or 6 years of honorable service. For specific eligibility details, it’s best to consult the official guidelines.


  2. Secure Preapproval: The next step involves obtaining preapproval for your loan from a bank or credit union. It’s important to note that not all VA lenders offer construction loans, so ensure to inquire about this during the preapproval phase. Preapproval gives you a clearer picture of the home you can afford and signals to your builder your commitment to the project.


  3. Choose a VA-Registered Builder: With preapproval in hand, your next move is to find a builder registered with the VA, which can be done through resources like the Veterans Information Portal or reach out to us directly. Your chosen builder must be VA-registered to qualify for a VA construction loan and will need to submit their home plans and material list in advance.


  4. Appraise the Property: Hiring a VA home appraiser familiar with VA construction loan requirements is crucial to evaluate your proposed home plans accurately.


  5. Loan Closing: After your plans are greenlit, you’ll proceed to close on the VA construction loan. The closing process can take between 30 to 45 days. Unlike standard mortgages, the funds from a VA construction loan are disbursed according to your project’s timeline, with the remaining balance placed in an escrow account for withdrawal as needed.


  6. Complete a VA Inspection: Upon construction completion, an official VA inspection is required. Depending on your loan structure, you might transition into construction-to-permanent financing, turning your loan into a permanent VA loan. Otherwise, you might need to refinance your construction loan into a traditional VA loan. Rocket Mortgage is available to assist with refinancing if necessary.


Factors To Consider About VA Construction Loans

The prospect of constructing your dream home is thrilling; however, securing a VA construction loan can present challenges. The loan approval process usually spans 30 to 45 days, and the loan must be finalized before breaking ground on construction.

Furthermore, homeowners are prohibited from participating in the construction work. This stipulation is due to the requirement that all builders involved must be licensed, insured, and have VA approval. As for the closing costs associated with the construction, the builder bears this responsibility, though these expenses can be integrated into the contract between the buyer and the builder.

FAQs About VA Construction Loans

Dive into some common inquiries regarding VA construction loans to clear up any lingering questions you might have.

What type of home can I construct using a VA construction loan? The eligibility for the type of homes that can be constructed with a VA construction loan varies by lender. Typically, constructing mobile or manufactured homes using these loans might not be permissible. For specific guidelines on what you can build, it’s best to consult with your loan officer or lender directly.

How are VA construction loan interest rates determined? Interest rates for VA construction loans aren’t dictated by the Department of Veterans Affairs. Instead, they’re influenced by factors such as the borrower’s credit score and history of lending. Lenders also consider the borrower’s debt-to-income ratio among other criteria to set the interest rate.

When do I start making mortgage payments on a VA construction loan? Mortgage payments on a VA construction loan kick in after the construction of the home is complete. The repayment period will be discussed with your lender, and you’ll need to settle the loan within the agreed remaining term.

The Final Takeaway

There are numerous financing options available for constructing a home, yet VA construction loans offer unique benefits for those who are active-duty service members or veterans. These loans can facilitate the building of a home without requiring a substantial down payment—or any down payment at all. While there are several advantages to utilizing this form of VA loan for home construction, navigating the approval process can be challenging.

Before proceeding with an application, it’s essential to organize your documentation, ensure you meet all the necessary criteria, and determine the amount of loan you require. If you’re considering building your dream home with the One-Time Close VA Construction loan, reach out to Elevation Mortgage directly at 719.247.6622.


Reed Letson

Reed Letson

Reed offers two decades of expertise as a mortgage broker, focusing on veterans and first-time home buyers. With a strong grasp of real estate and mortgage markets, he empowers clients with practical insights. Reed's passion is guiding clients to build wealth through real estate investments and financing solutions.

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