Can You Build A Home With A VA Loan?
Tags: building a new house, mortgage
First of all, the Sharp Homes team would like to thank you for your service. As a veteran, service member or spouse, you likely have many questions about using your VA home loan benefits. Since we design custom homes, this article is focusing specifically on building a home with a VA loan. The VA home loan benefit can typically be used to purchase a new construction home. Keep reading for more details you need to know before you build.
Note: At Sharp Homes, we’re custom home designers, not mortgage lenders. We’ve been in the business long enough to know some of the basic questions our buyers face so we’re providing this home financing information as a reference. We encourage you to speak with a qualified mortgage loan officer for questions about qualifying for a VA loan or to apply for a VA loan.
How VA Home Loans Work
A VA home loan is provided by a private lender, not the government. However, the Department of Veterans Affairs does guarantee part of the loan. That’s why it comes with benefits such as no down payment, low interest rates, no PMI (private mortgage insurance), and low closing costs. Keep in mind, not all lenders are VA lenders, and some may require a down payment for some borrowers, but it’s not required by the VA.
Eligible property types include single-family homes with up to 4 units, new construction homes, condos (if the complex is VA-approved), and more. It’s important to note that a VA loan must be used for your primary residence, so it can’t be used solely to purchase an investment property or one you intend to rent out.
The guaranty can be used multiple times over the course of your lifetime to buy or refinance a home. For more details on VA loan eligibility, benefits, and how to apply, visit the U.S. Department of Veterans Affairs website.
Can a VA Loan Be Used to Purchase a New Home?
Yes, you can buy a new construction home with a VA loan. How easy or difficult the process will be depends on when and how you purchase it.
Buying a Completed New Construction Home with a VA Loan
You will have an easier time securing a VA loan if the home is finished when you close, because you can use a regular VA home loan. This could either be a newly-built home that’s already on the market or a custom home that you purchase after it’s completed. In the latter case, your builder would need to accept your VA loan pre-approval.
Building a Home with a VA Construction Loan
If you want to purchase land and build your home from the ground up, the process is more complicated. You must use a VA registered builder and both your plans and the lot or building site must be approved by the Department of Veterans Affairs. The home must come with a one-year warranty, and three inspections will be required during the build process. This is why it can be difficult to find a lender offering VA construction loans.
A VA construction loan is a short-term loan used to cover the costs of buying land, materials and construction while your new home is being built. After the house is completed, you’ll close the home construction loan and transition to a permanent VA home loan.
What Are the Requirements for Building a House with a VA Loan?
Before the VA backs a mortgage, it wants to be sure the home will be safe, secure, and sanitary for the borrower and a wise investment for the Department of Veterans Affairs. A VA appraiser can help evaluate whether or not a new construction home meets all lending requirements.
VA Home Loan Requirements
- Must be a veteran or active duty service member
- Certain National Guard or Reserve service members are eligible
- Must meet length of service requirements
- Certain surviving spouses are also eligible
- Home must be your primary residence
- Property must meet conforming loan limits
- No minimum credit score
- No maximum debt-to-income ratio
- A one-time VA funding fee will be applied to the loan
VA Construction Loan Requirements
In addition to the criteria for a regular VA home loan, VA construction loans require:
- VA-registered builder
- VA-approved home plans
- VA-registered appraiser
- VA-approved build site
- Three inspections
- One-year home warranty
- Additional requirements may apply
How Do I Build a Custom Home with a VA Loan?
First, you must obtain a certificate of eligibility (COE) to show proof of your entitlement so you can get pre-approved for a VA loan. You can either request your COE online at va.gov or your lender can request it for you.
If you’re buying a new home that’s in process or just starting out, the custom home building process should be the same as with a conventional loan, as long as your builder accepts your VA loan pre-approval.
Planning to use a VA construction loan to buy land and build your home? You’ll want to start by finding a lender who offers these loan types and a builder who’s registered with the Department of Veterans Affairs.
When a home is in the final stages of construction, an appraiser and home inspector can help identify issues that could make the property ineligible for a VA loan.
VA Construction Loan Alternatives
As we’ve mentioned, it can be difficult to find a VA construction loan lender. If you can’t get a VA construction loan and you aren’t able to purchase a completed new home, there’s still hope. One option is to get a traditional construction loan and then refinance into a regular VA loan when the home is finished. This is a great alternative especially if you can’t find a VA lender willing to fund a zero down payment construction project or if you have trouble getting a VA builder registered with the VA.
Working with a knowledgeable team will help make it easier to build a home with a VA loan. Having a great VA appraiser, home inspector, and real estate agent on your home buying team can also help the process go smoothly. As a Wichita home builder, Sharp Homes has worked with many veterans and service members who’ve built their dream homes using their VA home loan benefit. We’re happy to answer any questions we can.