VA Construction Loans offer a great way for veterans and their families to build their dream homes. The purpose of this post is to give you information from the builder / construction perspective, as there are a few things you need to know if you plan to use your VA benefits for new construction.
When you're getting started, talking to a representative at the VA is a great first step. Once you understand your benefits from the VA side, it is also important to understand what VA benefits can – and can’t – do when it comes to new home construction. While it’s always good to confirm everything with your VA representative and lender, below are some quick things to know about how VA benefits generally work with new home construction:
WILL USING MY VA BENEFITS TAKE MORE TIME THAN A TYPICAL HOME BUILD?
NOPE! The general timeline for design, appraisal, and build-out should not change because you are using your VA benefits.
DO I NEED TO HAVE A DOWN PAYMENT / EQUITY EVEN IF I’M USING A VA LOAN WITH $0 DOWN PAYMENT REQUIREMENT?
YES, BUT ONLY FOR THE CONSTRUCTION LOAN. In a "traditional" 2-close construction loan, the Owner goes through two appraisal, underwriting, and closing processes. The first is the Interim loan, or the Construction Loan. The second is the actual mortgage. Your VA benefits apply to the second closing, or the actual mortgage. That is where your VA-determined interest rate will be locked in, and where the VA-approved down payment (or $0 down payment) will apply.
For the Construction Loan, however, your lender will require some sort of down payment or equity to use as collateral. If you own your land free and clear, often that can be all the equity you need. If not, you will need to bring cash to the table. Once the house is finished and your go through the mortgage process, you can recover that equity, but you will need access to a down payment or other equity to qualify for an initial Construction Loan.
ARE THERE SPECIAL CONSTRUCTION OR WARRANTY REQUIREMENTS TO USE MY VA LOAN?
A FEW. There are a few specific steps and inspections we need to make sure are in place in order for your home to qualify for a VA mortgage, but they are fairly straightforward – for example, your home must be treated against termites. You will also need a VA-approved home warranty through a third party, which Building as Partners can facilitate. These items will add minimal costs to your project.
When it is time for the final appraisal of your home, the appraiser will be selected by the VA, so might be different than your lender’s typical appraiser. But that should not affect your cost.
ARE THERE LOCAL BANKS WITH WHOM I CAN USE MY VA BENEFITS TO BUILD?
YES! We have relationships with several lenders who work with VA construction loans. They can help walk you through the process from the financing side and answer any further questions. Contact us and we’ll put you in touch!