Have you always dreamed of building the perfect home, designed to your own unique specifications? Is having a say in every detail that shapes your home important to you? If you are a service member or veteran, you don’t have to choose between the advantages offered by using a VA loan and securing the custom-built home that you crave. VA construction loans make it possible to use your housing benefits to finance both the construction and the purchase of a home.
What You Need to Know About VA Construction Loans
VA home loans, including VA construction loans, offer eligible borrowers a chance to secure a home loan with competitive terms, no requirement for a down payment or private mortgage insurance, and certain consumer protections. If you are considering using this form of financing, here’s what you need to know.
Who Is Eligible?
VA loans are backed by the U.S. Department of Veterans Affairs and extended by private lenders. Eligibility for the program is determined by the nature and length of your service. Current service members, veterans, people who served in the National Guard or Reserves, and surviving spouse of veterans may all qualify. Obtaining a Certificate of Eligibility demonstrates that you are eligible for this loan program. However, you still must show that you have sufficient income and credit to qualify for the loan.
Can You Include the Purchase of Land in the Loan?
VA loans are intended to finance the purchase of a primary residence, so a plan to pitch a tent on an empty lot is unlikely to win approval. However, the program is more flexible than many realize. As ValuePenguin reports, you can use a VA construction loan to buy land as long as you can demonstrate your firm intentions to build a home on it. To make it work, you will need to submit a detailed construction plan and schedule.
Who Can Build the House?
To utilize a VA construction loan, you have to select a builder that meets the program’s criteria, so if you hope to work up a sweat by actually completing the construction yourself, you will need to find another form of financing. According to VAntage Point, the VA’s official blog, the VA construction loan program does not allow an aspiring owner to function as a builder. It requires borrowers to use VA-approved builders, so you’ll need to find either an approved builder or a licensed, insured builder who is willing to complete the process to become one. The builder must also be willing to assume responsibility for part of the closing costs because the VA only allows the borrower to pay the closing costs traditionally associated with a purchase loan. However, builders may include these extra closing costs in their contract with the borrower.
What Standards Must the Residence Meet?
While the VA doesn’t specify a floor plan, it does set out certain basic standards that any home purchased with a VA loan must meet (source). First, you must use the property as your primary residence. The home must offer sufficient space for living, cooking, dining, and sleeping, and the necessary utilities must be available. If you want to avoid a down payment, it’s also smart to keep the size and design of the home similar to others in the area. A home that is larger than the norm or on an oversized lot may result in an appraisal that is too low.
How Will You Receive the Funds to Build Your Home?
As VA.org explains, the money is released in stages when you use a VA construction loan. After the initial payment is released, the remaining money is placed in an escrow account. It is doled out to your builder in installments, with your approval, as specific construction milestones are achieved.
When Do My Mortgage Payments Begin?
You cannot live in a home that is actively under construction. Are you still expected to make a monthly mortgage payment? As MilitaryBenefits.info reports, VA loan rules make it clear that the payments for a VA construction loan begin when the work is done. While the entire loan must be paid off within the established term, your first payment may be delayed for up to a year.
With a VA construction loan, you will inevitably face some extra steps, so it’s important to choose a proven lender who can guide you smoothly through the process. At PrimeLending: Manhattan, Kansas, the needs of our customers are always our top priority. Our experienced team is committed to helping your achieve your goals of homeownership, and we have the expertise and resources to help you move forward with confidence and efficiency. Contact us today to explore your loan options and learn more about our services.