Navigating the VA Construction Loan
02-18-2022 • MHS Lending
The real estate market is booming right now and with limited inventory, a lot of buyers are looking for other options to buy their dream home. Some people are looking for existing homes that they can renovate while others are exploring the possibility of a brand-new construction. Both of these options make it so you can purchase a house using a home loan and customize it to meet your needs and design tastes. One of the most common myths with the VA Loan is that neither of these options are possible using this powerful loan option, but in fact, there are options for both!
What is the VA Construction Loan?
The VA Construction Loan (sometimes called the VA One-Time Close Loan or OTC) is for active-duty military members and veterans who want to build a new home using a VA Loan. With this loan you can buy land (or an existing shell of a home) and pay for the planning, developing, and construction of the home all in a single loan product. It’s all done in one so there’s no need to buy land separately with a land loan and refinance to a VA Loan.
Another option with the VA Construction Loan is you use this loan to include the demolition of an already built house into the cost of the build. If you are looking to build your dream home from the ground up while taking advantage of the hard-earned benefits you get from the VA Loan products, this is a great loan option for you.
Guidelines and requirements for using the VA Construction Loan
Eligibility for the VA Construction Loan is the same as any other VA Loan. In addition to active-duty military members and veterans, a few distinct groups are also eligible. These include members of the reserves and national guard who have met certain requirements and surviving military spouses. Once you have determined you’re eligible to receive your COE (Certificate of Eligibility), you’ll want to work with a lender that has extensive experience working with military families as this loan has very specific guidelines.
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.
Costs associated with the VA Construction Loan
Like most VA Loans, the VA Construction Loan is subject to a funding fee which is added to the total loan. This loan in particular has funding fees that 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. It’s important to note that there could be additional costs associated with plans and permitting that you will want to discuss beforehand with your preferred contractor.
Getting started with the VA Construction Loan
VA Construction Loans are best used for eligible military members or veterans who want to build a new home from the ground up or demolish an old one and build a home on that land. They are a great option if you’re looking to be the very first owner of your house and pick the fixtures and features of your home, so it’s truly customized for you and your family. If you’re looking to explore your options with the VA Loan and are interested in starting your home buying journey, give our team at MHS Lending a call at 619-728-7620 today!