A Veterans Affairs construction loan is a loan that veterans can utilize to build their dream home.
The ins and outs of how to apply for and use a VA construction loan can be tricky if you’re not as familiar with the process.
We’re going to review VA construction loans, including the VA construction loan process, what’s included, the benefits, and how to begin the exciting journey of building your home.
At the end of this, you’ll be able to identify if this is the right loan for you and how to get in touch with one of the most trusted mortgage professionals Michigan has to offer.
Let’s get started.
What is a VA construction loan?
A VA construction loan allows veterans to buy land and pay home construction costs.
Three components are included in a VA construction loan:
- Land acquisition costs
- Home construction costs
- The permanent loan is what pays for the first two components of the VA construction loan and serves as the final long-term home mortgage loan. This is the total amount you’ll pay in monthly payments.
Furthermore, two types of VA construction loans can be offered,
- One-time close construction loan
- Two-time close construction loan
The one-time close construction loan is used to close on the construction loan and secure permanent financing for the home at the same time.
The two-time construction loan typically includes an initial loan prior to closing on the start of construction, and then a final closing in which the permanent loan is used to replace the initial loan.
While you can use the loan to purchase land from a buyer, you cannot use the loan for newly developed properties where the builder is using their own funds for construction.
The builder, however, can finance the construction loan from their own resources.
A traditional construction loan requires that the applicant secure a separate loan for the construction and the land, resulting in more closing costs than the VA loans.
The VA construction loan wraps up both the construction financing and the land financing into one. This means home buyers only have to pay closing costs one time.
VA Loan Benefits
Those who are eligible for a VA construction loan may not be aware of all the benefits.
This can include but is not limited to, the following.
No down payment required
For those who take advantage of a VA loan, there is no down payment required. Those who qualify can build the house of their dreams with a lower liquid cash requirement.
No cap on the maximum lending limits
This means that if you are eligible, you will not be restricted regarding maximum loan limits in the county in which you are building your dream home.
No interest payments during the construction phase
Essentially, this means that you may not have to pay any interest during the construction phase of the loan.
No additional fees on the second closing
Once the loan is approved and construction is complete, you won’t have to requalify with the lender and subsequently will not have to pay any additional fees that would typically occur during a second closing.
There are exemptions based on certain disabilities
For example, if a veteran has a specific disability rating based on certain factors, then they are exempted from paying the VA Funding Fee.
The VA Funding Fee is a fee that goes to the Veterans Affairs and supports their home loan programs.
There are other benefits out there as well, so it’s best to speak with an experienced home loan advisor to see what they can offer and what you may qualify for.
How difficult is it to get a VA construction loan?
Most mortgage professionals say that VA construction loans are difficult since you must find a VA-approved lender. Then you still have to qualify.
But the truth is, there are complicated processes within every type of loan.
VA construction loans were created to help veterans, not to complicate the process.
The factors that determine eligibility include credit history, income levels (preferably higher), and employment history (preferably long-term).
You’ll need to prove that you’re an eligible service member or veteran and will need to provide a COE—Certificate of Eligibility.
You’ll then need to be pre-approved for the VA construction loan.
VA construction loan lenders will assess your income, assets, and credit score to determine if you would be able to commit to the VA construction loan.
Once preapproved, you’ll need to search for a VA-Registered builder. A VA-registered builder is a required guideline within the loan process.
Thankfully, there are informative sites out there that can help find a registered builder near you.
Once you’ve gathered your documents, and COE, and found a VA-Registered builder, you’ll then get a VA-home appraiser to evaluate and approve your proposed dream home.
After these steps are completed, you’ll be able to close on your VA construction loan.
The VA construction loan process
Building your home is an exciting adventure and knowing you’re in the right hands will allow an even smoother process.
The first step of the process is to reach out to a VA construction loan lender and review your options.
During this meeting, you’ll get information on VA home loans, the process, and what you qualify for.
Before reaching out to a mortgage lender, you may want to prepare yourself with some questions to get the most out of your meeting.
Some questions to ask your potential VA construction loan lenders:
- Do they offer a VA construction loan?
- What would the interest rate be?
- What is their experience with VA construction loans and what benefits make their process (and loan) better than competitors?
- What is their construction timeline and what specifications do they include or limit?
- Do they include a balloon payment, or would they offer another condition of payment, at the end of the loan?
Keep in mind these are just a few questions to get started.
You can also ask about their personal experience with construction loans to determine if they would be the right choice.
Get started with GO Mortgage
There are many VA lenders, but there’s only one that’s leading the industry for home buyers—GO Mortgage.
GO Mortgage has been rated a top mortgage lender on Google, Zillow Group, and experience.com, and has a dedicated VA home loan program.
Your home loan advisor will assist you in planning your mortgage based on your specific financial data and your desired result. They are with you during the entire process from application to closing.If you’re ready to get started building your dream home, get in in touch with one of our home loan advisors.