The Ins and Outs of the VA Construction Loan
The VA Home Loan has a variety of loan products, designed to offer home purchasing solutions to every military member. While most people use the VA Home Loan to buy their dream home, many don’t realize they can build their new home from the ground up. The VA Construction Loan allows you to plan, develop and construct your dream home in a single VA Loan product. You may also hear it called the One-Time Close Loan (OTC). We believe knowledge is power, which is why we put together the ins and outs of the Construction Loan. This is your chance to take advantage of your hard-earned benefits and build your dream home with a VA Loan.
What exactly is the VA Construction Loan?
The VA Construction Loan is for veterans and military members who want to build a home using a VA Loan. With this loan you first buy land or an already built house (which you can renovate). Then you pay for the planning, developing, and construction of the home all in a single loan product. The loan is all done in one bundle. This makes it so there’s no need to buy land separately and then refinance to a VA Loan. Another awesome benefit of the Construction Loan is that you can also include the demolition of an already built house. This can be added into the total cost of the build. If you’re looking to build your dream home from the ground up while still taking advantage of your hard-earned VA Loan benefits, this loan is for you.
What are the benefits of a construction loan?
There are many benefits to taking advantage of the VA Construction Loan outside of simply being able to build from the ground up. These benefits include:
- Build your dream home on a lot of land where you want to live.
- Be the very first owner of your house.
- Pick the fixtures and features of your home so it’s truly custom for you and your family.
- The demolition of an already built house can be bundled into the loan.
- There is no private mortgage insurance (PMI).
- Because this loan is bundled together, you only need to apply, qualify, and close on a loan once.
What are the requirements?
The property requirements are the same as those for a normal VA Loan purchase. The builder must also register with the VA in order to be approved. One important thing to note is that this process can be more complicated than a traditional VA Home Loan. Similar to other VA Loans, once you build the home with your VA Construction Loan, it will need to be your primary residence.
Is there an additional fee?
The VA Construction Loan is subject to a funding fee which is added to the total loan. Similar to other VA Loans, these fees are paid to the Department of Veterans Affairs. Funding fees are collected in order to offset the bank or lender's losses if you were to default on your mortgage. For the construction loans, the funding fees are the same as traditional VA Loans and are set at 2.3% for first time users and 3.6% for subsequent use. Exceptions are made when a veteran has 10% or greater disability or an active duty member has been awarded the purple heart.
Is it hard to get qualified for a VA Construction Loan?
Because there is more risk associated with construction loans, standards set by lenders are extremely important. You will need to ensure the builder meets VA standards and your lender can help you in the process of approving and selecting the best team to help you build your dream home.
Before you can start the process of using any VA Loan product, you’ll need to obtain your Certificate of Eligibility. You can do so through MHS Lending or directly through the US Department of Affairs by clicking here. At MHS Lending, we offer an extensive product portfolio in order to offer home purchasing solutions for every military member and veteran. This includes the VA Construction Loan, VA refinancing options, and even options for those who have damaged credit. Once you’re ready to begin the exciting process of buying or building a home for a VA Loan, give us a call today!