Building your dream home is a possibility with a VA home loan. But it isn’t always an easy road.
This no-down payment program allows qualified borrowers to use their VA entitlement to obtain a mortgage for new construction. The issue is that it can be challenging for VA borrowers to locate a lender willing to issue a construction loan. The VA doesn’t actually make home loans; rather, it basically insures them. It’s up to individual VA-approved lenders to determine what kind of loans they’ll issue.
There’s a level of risk in new construction that many are shying away from in the wake of the housing market collapse.
What’s increasingly common is that veterans need to secure a construction loan from a builder or a local lending institution. As the homebuilding process wraps up, qualified borrowers can then refinance that short-term construction loan into a permanent VA mortgage.
Getting a Construction Loan
Because it’s tough to find VA lenders out there willing to pay the up-front costs of construction, many veterans wind up using a homebuilder or a local financial institution. That can present hurdles like a down payment, which may be required to secure a construction loan. You can and should talk with as many builders and local banks as possible. Look for the best possible terms out there in terms of down payment, closing costs and more.
Some builders may have programs or deals especially for veterans and military families to build a home. Be sure to do your homework on the company and ensure it’s a legitimate builder with a track record of success and satisfied homeowners.
You can also check with lenders to see if they’ll actually do a true VA construction loan, where the lender pays draws to the builder as the project progresses. But know going in that you might struggle to locate one. Like so many other lenders, Veterans United does not make construction loans to build new homes.
Refinancing a Construction Loan
You’ll have considerably better luck locating VA lenders willing to turn that short-term construction loan into a long-term VA loan. This is something Veterans United can help you with.
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.
The home will need to have a VA appraisal and be constructed by a builder with a valid VA builder ID. These are just a couple of reasons why it’s important to talk with a VA lender at the beginning of your new construction journey. Lining up a construction loan is obviously the critical first step, but you’ll need to be able to turn that short-term loan into a long-term mortgage once the home is built. That’s not something you want to wait to explore.
Talk with a Veterans United loan specialist at 855-524-7279 about turning a construction loan into a permanent VA mortgage. You can also fill out a VA loan application and get a call back.
Photo courtesy pdz_house