Are you looking to build your dream home? A VA construction loan can give you the necessary capital to build your property from the ground up. Qualified service members, veterans, and their spouses can use the capital from this loan to acquire land and construct a new home. You don’t even have to make a down payment for this loan.
What is a VA Construction Loan?
A VA construction loan allows veterans to buy land and develop a property on it. These loans can provide the financing to buy the land, materials, and labor needed to complete the home. VA construction loans are usually short-term financial products.
What are the Eligibility Requirements for a VA Construction Loan?
The Department of Veteran Affairs has several requirements for VA construction loans. You’ll have to fulfill these parameters to receive financing:
- You need a Certificate of Eligibility (COE)
- Typically, a credit score above 620
- Usually, a debt-to-income ratio below 41%
- Finding a VA-approved home builder
- A construction plan
How Does a VA Construction Loan Work?
The VA construction loan process consists of several steps. Here’s what you should know before embarking on the journey.
Preparing Your COE and Other Documentation
VA loan providers will request your COE, identification, proof of income and other documents. Check the list of required documents before submitting your application. Most lenders make this list readily available on their websites.
Working with VA-Approved Lenders
You will have to find a VA-approved lender to receive a VA construction loan. Consumers can choose from several options. It is a good idea to read online reviews before deciding on a lender.
Working with a VA-approved lender like The Federal Savings Bank ensures that you are working with a trusted partner who understands the intricacies of VA loans and can provide you with the best options available. Their team of experts is dedicated to helping veterans and active duty service members achieve their homeownership goals while also providing exceptional customer service throughout the process. With their expertise in VA loans, they can help you determine if a refinance makes sense for you and your long-term goals.
Whether you are looking to purchase a new home using a VA loan or considering refinancing your current mortgage, The Federal Savings Bank is here to help. Visit their website today to learn more about their VA loan options.
Choosing a Builder
You must have a VA-approved builder to apply for this financial product. Homeowners can choose from several companies and individuals. Reading online reviews, speaking with builders, and seeing what they offer can lead to a better decision.
Getting Preapproved for a Loan
Preapproval makes it easier to get the financing you need. It’s a more detailed process than prequalification that gives you an idea of how much you can borrow. You can then adjust the scope of your project accordingly.
The Application Process
You will have to provide the necessary documents and submit your loan application. Many lenders make the application process simple. It can take a few minutes to fill out an online form.
VA Appraisal
VA lenders appraise the projected property’s value based on its home design and lot. The appraisal fee will be included in closing costs. Homeowners must make up the difference if the appraised property value is less than the projected cost of the construction.
Closing
It can take 45-60 days to close on a VA home construction loan. This timeframe is standard within the mortgage industry.
Construction
Once you get approved and receive ownership of the property, construction can begin. You can use the loan’s proceeds to hire workers and buy raw materials.
Final Inspection
A final inspection takes place once the construction has been completed. It confirms that workers operated in substantial compliance with the construction blueprints. A final inspection also confirms the property is compliant with applicable laws and rules.
What are the Advantages of Getting a VA Construction Loan?
A VA construction loan offers several advantages for homeowners. These are some of the highlights:
- You can build your dream home: Listed properties may not fulfill your criteria. Under this scenario, you can opt to build your own home with a VA construction loan.
- Make home construction manageable: You don’t have to raise all of the necessary funds for a home construction project. This financial product gives you the capital right away and breaks it into monthly payments.
- No money down: You are not required to make a down payment toward this loan. Private mortgage insurance doesn’t apply either.
- You can save money: It’s possible to save money by constructing a home instead of buying a property that is currently listed on the market.
Financial Aspects of VA Construction Loans
A VA construction loan makes it easier to build your dream home. However, it is also a significant financial commitment. These are some of the details to keep in mind before starting the application process.
Loan Limits and Funding Fees
The Department of Veteran Affairs has loan limits for its financial products. In most areas, a VA loan cannot exceed$766,500. However, some areas have loan limits as high as $1,149,825. These loan limits typically increase every year due to inflation and other factors.
You will also have to contend with a funding fee that ranges from 1.25% to 3.3% of the loan’s balance. This fee helps to fund the VA program so it can offer more loans with zero down payment requirements and no private mortgage insurance. A higher down payment will minimize the funding fee.
Interest Rates and Terms
Just like any loan, the VA construction loan will have an interest rate and terms. You can choose a fixed-rate or a variable-rate loan, and the term can be as long as 30 years. A lengthier term length will minimize your monthly payments but keep you in debt longer. On the other hand, a shorter term will result in a debt-free property sooner, but you will end up with a higher monthly payment.
Budgeting for a VA Construction Loan
A VA construction loan will take up space in your monthly budget for several years. Knowing how much you can afford will make it easier to determine the optimal loan length. If your budget is tight, you can add more years to the back of your loan to spread out the loan payments.
Tips for Success with VA Construction Loans
These tips can help you successfully take out a VA construction loan and integrate it into your finances.
Common Mistakes to Avoid
These are some of the common mistakes to avoid when taking out a VA construction loan:
- Borrowing too much money and ending up with a high monthly payment
- Not anticipating the rising price of materials and labor
- Not seeking professional help during the process
Leveraging Professional Guidance
Home builders can give you an idea of what to expect when the project starts. You can also speak with financial professionals to determine how to adjust your budget to fit in the monthly payments.
Staying Informed and Engaged
Staying in the loop with the construction project’s progress will ensure that it gets completed in a timely manner. Even before you receive financing, it’s a good idea to stay in contact with the lender’s representatives to see how close they are to reaching a decision about your application.
Is a VA Construction Loan Right for You?
A VA construction loan can be right for you if you want to build your own property but don’t have enough funds in your savings account. Home construction can save money and result in a personalized touch that may not be available with public listings. You should assess your financial situation before going through the process and accepting an offer.
FAQs About VA Construction Loans
You can use a VA loan to build a house. VA construction loans give you the capital you need to get started.
Homeowners can use VA loans for home renovations. You can take out a new VA loan or get a VA cash-out refinance.
