A Comprehensive Guide to Building Your Home with a VA Construction Loan

Financing a home construction project can feel overwhelming, especially if you rely on a single source of income. Saving enough for your first real estate investment could take years, particularly with rising inflation. For most people, securing a mortgage is the most practical solution.

A VA construction loan is one such option, providing eligible veterans and active-duty service members with an opportunity to finance their home-building dreams. These loans offer unique benefits and exist to make home construction more accessible for veterans. In this guide, we’ll explore everything you need to know about VA construction loans, from eligibility to the application process.

What Is A VA Construction Loan? 

A VA construction loan is a short-term financing option guaranteed by the U.S. Department of Veterans Affairs. It allows qualified borrowers to purchase land and construct a primary residence.

While VA construction loan lenders typically cater to veterans building custom homes, these loans can also cover certain additions, like a garage, as long as it’s part of the primary residence. 

What Is A VA Construction Loan Used For? 

VA construction loans are primarily intended for two purposes:

1. Purchasing a parcel of land.
2. Building a custom residential property.

It’s important to note that VA building loans generally cannot be used for property repairs or renovations. If you’re looking to finance home repairs, consider a VA renovation loan instead. To explore this option, ensure you meet the eligibility criteria and identify reputable VA renovation loan lenders.

Eligibility Criteria for VA Construction Loans 

Eligibility is a critical factor in securing a VA construction loan. Here are the key requirements:

• Eligibility is a critical factor in securing a VA construction loan. Here are the key requirements:
• Service History:
  Veterans who served after 1990 must have:
  • Completed 24 continuous months of service.
  • Spent at least 90 days on active duty.
  • Retired or been discharged due to a service-related disability.
• Criteria may vary for those who served before 1990.
• Loan Purpose:
  You must intend to use the loan for purchasing land or constructing your primary residence.

Requirements for Taking out A VA Construction Loan 

Once you confirm your eligibility, you’ll need to gather the following to apply for a VA construction loan:

Government-issued ID (e.g., driver’s license).

• Government-issued ID (e.g., driver’s license).
• Bank statements and credit score.
• Debt-to-income ratio (DTR) documentation.
• Construction plans approved by the lender.

Understanding the requirements to qualify for a VA construction loan is essential before submitting your application.

The VA Construction Loan Process

1. Obtain a Certificate of Eligibility (COE)

Proving your eligibility is the first step. You can apply for a COE through the VA’s eBenefits portal. Veterans must provide their DD214 discharge papers, while active-duty applicants will need a signed statement of service.

2. Find VA Construction Loan Lenders

Choosing the right lender is crucial. Compare prospective lenders based on loan terms, interest rates, and repayment options. Prioritize VA-approved lenders for a smoother process.

3. Find a VA-Approved Builder

If you’re building a home, hire a professional contractor registered with the Department of Veterans Affairs and possessing a valid VA Builder ID.

4. Get Preapproved 

Preapproval means finding out whether you qualify for the VA construction loan you’re applying for and how much a lender will approve. Factors like your credit score, employment status, DTR (debt to income ratio), and the amount of funding you require will all come into play. 

You’ll need the following documents during the preapproval stage:

• Government-issued identification cards, such as driver’s license 
• Bank statements  
• Statement from any of your retirement or investment account 
• Federal tax returns for the past two years 
• Certificate of Eligibility (COE)
• Pay stubs 
• Purchase agreement for the piece of land (if you’re yet to buy the land) 
• Deed to the land, complete with survey maps (if you already own the land) 
• Construction contract duly signed with the builder 

If you’re a veteran, some lenders may also inquire about the reasons for your discharge from the service.

5. Seek A VA Appraisal 

The lender will arrange a VA appraisal to evaluate the property’s specifications and estimated market value. If the appraisal suggests significant future value, you may qualify for a larger loan amount.

6. Close on the Loan

Once everything is approved, you’ll close on the loan. Note that processing can take up to 60 days, and funds are often disbursed in stages based on project milestones.

VA Construction Loan FAQs

Do I need a deposit for a VA construction loan?

No, most VA construction loans do not require a deposit, as they offer 100% financing. However, additional costs like appraisals or VA loan closing costs may apply.

Can I use a VA construction loan to renovate a home?

No, standard VA construction loans are not designed for renovations. Consider a VA renovation loan for such purposes.

What makes VA construction loans different from conventional loans?

VA loans are backed by the Department of Veterans Affairs, often requiring no down payment and offering competitive interest rates compared to conventional loans.

Thinking About a VA Construction Loan?

Building a home with a VA construction loan can be a rewarding process for eligible veterans and service members. These loans provide a unique opportunity to finance land purchases and home construction without the burden of hefty down payments or excessive interest rates.

Don’t be afraid because someone told you it was too difficult or because you’ve heard one too many myths about VA loans. By following the steps outlined in this guide and partnering with the right VA construction loan lenders, you’ll be well on your way to turning your dream home into a reality!