Building your dream home is a possibility with a VA home loan, and now is the time to get the ball rolling on your application.
This no-down payment program allows qualified borrowers to use their VA entitlement to obtain a mortgage for new construction. Right now, military borrowers may find it challenging to locate a lender willing to issue a construction loan. There’s a level of risk in new construction that many are shying away from in the wake of the housing market collapse.
But that doesn’t mean building a brand new home is impossible for VA borrowers. The key is finding a lender that offers what’s known as a “construction-to permanent” mortgage specifically for new construction. This is a unique type of financing tool that’s helping veterans build a home during a time of cautious lending.
The more common process for building a new home is for the borrower to start with a construction loan from a builder, then ultimately finance that short-term loan into a longterm mortgage. This is the construction-to-permanent flow that allows veterans to bring their VA loan benefits into play.
These loans are typically treated like purchase loans rather than refinances. That means prospective borrowers will need to meet the same credit, debt-to-income, residual income and other requirements as a veteran purchasing an existing home. VA lenders require builders to provide a one-year warranty.
There are a couple different ways lenders can handle VA construction loans.
Construction Loan Process
We’ve already touched on the first path, which involves the borrower getting a short-term loan from a builder and then obtaining a VA loan upon completion of the property. The VA also allows lenders to finance the actual construction and pay builders and contractors as they work on the home. This path sidesteps the need for a construction loan.
It’s also a less common approach, especially in the current market. Many lenders have stopped providing money up front for new construction, opting to let builders handle the financing until the home is complete. The VA will still appraise the property, and just like on existing homes the agency can’t compel the owner — in this case, the builder — to make any changes or additions in order to satisfy VA requirements.
Talk with a loan specialist at 888-212-1958 to learn more about new construction with a VA loan. You can also fill out this simple form and get a call back.
Photo courtesy of pdz_house