VA-approved lenders offer construction loans, providing financing for the construction process and will be helpful when looking for VA approved builders.
VA Construction Loans are available to eligible veterans and active-duty military members looking to build a new home. If you’re a veteran or a military member interested in building a new home, it’s essential to understand who offers VA Construction Loans and how to qualify. We’ll explore the lenders that offer VA Construction Loans and what you need to know before applying.
What is a VA Loan?
A VA loan is a type of mortgage loan that is guaranteed by the United States Department of Veterans Affairs (VA). VA loans are designed to help eligible veterans, active-duty military members, and their families to purchase a home or refinance an existing mortgage. VA loans offer several advantages over traditional mortgage loans, including no down payment requirement, lower interest rates, and no private mortgage insurance (PMI) requirement. VA loans are available through VA-approved lenders, and they can be used to purchase a primary residence.
What is a VA Backed Construction Loan?
A VA-backed construction loan is a type of mortgage loan that is guaranteed by the United States Department of Veterans Affairs (VA) and designed specifically for eligible veterans and active-duty military members who want to build a new home from the ground up. VA-backed construction loans provide financing for both the construction process and the permanent mortgage loan. This type of loan allows borrowers to build a new home with no down payment requirement and lower interest rates than traditional construction loans. To qualify for a VA-backed construction loan, the borrower must meet certain eligibility requirements and work with a VA-approved lender that offers this type of loan. It is very important when going through the process with a lender you understand what is being offered by the lender because not all lenders offer VA construction loans. The loan proceeds are typically distributed in stages as the construction progresses, and the borrower is only required to make interest-only payments during the construction phase. Once the construction is complete, the loan is converted into a permanent mortgage loan.
VA Construction Loan Process
The VA construction loan process can be broken down into several key steps:
- Determine eligibility: The borrower must be a veteran or an active-duty military member and meet the VA’s eligibility requirements for a construction loan.
- Choose a VA-approved lender: The borrower must work with a VA-approved lender that offers VA construction loans.
- Obtain a construction contract: The borrower must have a construction contract with a builder or contractor that outlines the scope of the project, the timeline, and the budget.
- Apply for the loan: The borrower must submit a loan application and provide documentation such as proof of income, credit score, and proof of VA eligibility.
- Get the loan approved: The lender will review the loan application and verify the borrower’s eligibility and the construction contract details. Once the loan is approved, the borrower can close on the loan and start the construction process.
- Disburse funds: The lender will disburse the loan funds to the borrower in stages as the construction progresses, and the borrower will make interest-only payments during this time.
- Convert the loan to a permanent mortgage: Once the construction is complete, the loan is converted into a permanent mortgage loan, and the borrower will make regular payments on the loan.
The VA construction loan process can be complex, and borrowers should work closely with their lender to ensure that they understand all of the requirements and deadlines involved.
Do All Banks Offer VA Construction Loans?
Not all banks offer VA construction loans. VA construction loans are only offered by VA-approved lenders, which include many traditional banks as well as mortgage companies and other financial institutions. It’s important for borrowers to do their research and find a lender that is experienced in offering VA construction loans, as the process can be more complex than a traditional mortgage loan. Borrowers can find a list of VA-approved lenders on the VA’s website, or they can work with a mortgage broker who can help them find a lender that offers VA construction loans.
Who Offers VA Backed Construction Financing?
The Department of Veterans Affairs (VA) does not directly offer construction financing, but they do offer a program called the VA Construction Loan, which is a type of VA-backed loan that can be used to finance the construction of a new home using VA approved contractors.
However, VA-approved lenders, such as banks and mortgage companies, offer VA-backed construction financing to eligible veterans, active-duty military personnel, and their surviving spouses. These lenders can provide financing for the construction of a new home or the renovation of an existing home, with the loan being backed by the VA.
When looking for a VA construction loan, it’s important to ask lenders several questions to determine if they are the right fit for your needs. Some helpful questions to ask a lender when looking for a VA construction loan include:
- What are the loan eligibility requirements?
- What is the interest rate and are there any additional fees or charges?
- What is the timeline for funding the loan?
- What is the loan term and repayment schedule?
- What type of documentation is required to apply for the loan?
- Is the lender VA-approved and experienced in offering VA construction loans?
- Are there any restrictions on the type of construction project or builder that can be used?
- What are the loan-to-value (LTV) requirements for the loan?
- Are there any prepayment penalties if the loan is paid off early?
- Can the lender provide references or testimonials from previous VA construction loan borrowers?
Asking these questions can help you understand the lender’s lending practices and ensure that you find the right VA construction loan to meet your needs.
How Hard is it to get a VA Construction Loan?
Getting a VA construction loan can be more challenging than getting a traditional mortgage, but it is still possible for eligible borrowers. The requirements for a VA construction loan can be more stringent than those for a traditional mortgage, and the process can be more complicated.
To qualify for a VA construction loan, you must first meet the eligibility requirements for a VA loan, which include having a valid Certificate of Eligibility (COE), meeting credit and income requirements, and using the loan to purchase or construct a primary residence.
Additionally, to obtain a VA construction loan, you must have a construction contract in place with a builder, as the loan is designed to cover the cost of the construction process. You may also need to provide detailed plans and specifications for the proposed home, and the builder will need to meet certain qualifications and provide documentation of their experience and credentials.
The application process for a VA construction loan can be more time-consuming and complex than for a traditional mortgage, as there may be additional requirements and documentation needed. However, working with a lender who has experience with VA loans and construction financing can help streamline the process and increase your chances of approval.
Overall, while it may be more challenging to obtain a VA construction loan, it can be a great option for eligible borrowers who want to build a new home or renovate an existing home.
How Much Do You Have to Put as a Down payment on a VA Construction loan?
The down payment required for a VA construction loan depends on the lender’s requirements and the borrower’s qualifications. Generally, a down payment is not required for a VA construction loan, as the VA guarantees a portion of the loan, which eliminates the need for a down payment but makes sure you are speaking to the lender.
However, some lenders may require a down payment, depending on the borrower’s creditworthiness and other factors. The down payment amount could range from 0% to 20% or more of the total project cost, depending on the lender’s requirements and the borrower’s qualifications.
It’s important to note that while a down payment may not be required for a VA construction loan, borrowers may still need to pay certain fees, such as an origination fee or a VA funding fee. These fees can be rolled into the loan, but they will increase the overall cost of borrowing.
Overall, the down payment required for a VA construction loan will vary depending on the lender and the borrower’s qualifications, but it is possible to obtain a loan with no down payment.
What if You Can’t Find a VA Construction Loan Lender?
If you are having difficulty finding a lender that offers VA construction loans, there are a few options you can consider:
- Work with a mortgage broker: A mortgage broker can help connect you with lenders who offer VA construction loans. Brokers have relationships with multiple lenders and can help you find the best loan for your needs.
- Expand your search: If you are having trouble finding a lender in your area that offers VA construction loans, consider expanding your search to other areas. There may be lenders in other parts of your state or in neighboring states that offer these types of loans.
- Consider alternative financing options: If you are unable to find a lender that offers VA construction loans, you may need to consider alternative financing options, such as a conventional construction loan or a home equity loan. These options may have different eligibility requirements and loan terms than a VA construction loan, so it’s important to do your research and compare the options carefully.
- Contact the VA: If you are still having trouble finding a lender that offers VA construction loans, you can contact the VA for assistance. They may be able to provide you with a list of lenders in your area that offer these types of loans.
It’s important to remember that obtaining a VA construction loan can be a complex process, and it may take some time to find the right lender and obtain the necessary approvals. Be patient, do your research, and work with experienced professionals to help guide you through the process.
ADPI Pro Tips
Here are some pro tips on who offers VA construction loans:
- Look for VA-approved lenders: The first step in finding a lender that offers VA construction loans is to look for VA-approved lenders. The VA maintains a list of approved lenders on its website, and you can also check with local banks and credit unions to see if they offer VA loans.
- Check for experience: When researching lenders that offer VA construction loans, look for lenders that have experience working with VA loans and construction financing. They should be able to guide you through the process and provide the necessary documentation and support.
- Compare loan terms and rates: Before choosing a lender, compare loan terms and rates from multiple lenders to ensure you are getting the best deal. Consider factors such as interest rates, fees, repayment terms, and other loan terms when comparing lenders.
This blog was written in collaboration with our absolutely amazing DoD SkillBridge employee: Joe